tag:blogger.com,1999:blog-7539577136486286096.post4227625178270977216..comments2024-03-28T02:46:41.090-05:00Comments on Supply and Demand (in that order): Gullible New Keynesians? Or Tax Collector Windfall?Casey B. Mulliganhttp://www.blogger.com/profile/03317454408275318282noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7539577136486286096.post-58947096708548052862009-12-17T14:40:10.050-06:002009-12-17T14:40:10.050-06:00Customer is misspelt as costumer at a couple of po...Customer is misspelt as costumer at a couple of points.<br /><br />In response to Bill Woolsey's comment, the notion that all labour sits on the same giant supply and demand curve, and will be affected evenly by any tax increase, seems to take aggregation way beyond the sensible.Lorenzohttps://www.blogger.com/profile/00305933404442191098noreply@blogger.comtag:blogger.com,1999:blog-7539577136486286096.post-8490824738562780032009-12-17T11:46:28.899-06:002009-12-17T11:46:28.899-06:00This is absurd!
Forget all the business about the...This is absurd!<br /><br />Forget all the business about the Fed and interest rates.<br /><br />Assume that the current market wage rate is above equilibrium. The quantity of labor demanded is less than the quantity of labor supplied.<br /><br />The actual quantity of labor utilized depends on the short side of the market--it is the quantity demanded.<br /><br />The incentive effects of taxes impact the supply of labor and change the amount of the surplus. Only if taxes are increased and reduce the supply of labor enough so that there is a shortage at the current market wage, will the quantity of labor fall. It could be that wages rise and quantity falls. Or it could be that there is an actual shortage and the short side of the market is now quantity demanded.<br /><br />If you assume that the market wage is always at the market clearing level, then what the Fed, zero bound, or whatever, are pretty much beside the point.<br /><br />Of course, the odd stories about higher taxes, higher expected wages and prices, a lower demand for money, greater real expenditures on products and so demand for labor are a bit implausible. But the reason why the incentive factors don't matter is that there is a surplus of labor. The labor market is assumed to not clear.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.com