> The other night on my radio show, Ellen Frank, an economist, said
> that "we don't really understand how the economy works." I saw a
> piece by Brad De Long the other day that said almost the same thing.
> What a funny business, economics.
>
I'm sorry I missed that show. Is there a transcript anywhere? Where is the De Long piece you're talking about? In the NYT?
As for the funny business of economics, here's a question: in a textbook that I'm reading, the authors say that two assumptions that underly national growth equation are constant returns to scale and a competitive economy. They go on further to say that, in a competitive economy, factors are paid their marginal products (MPN=w [real wages]).
Would not constant returns to scale and marginal productivity be contradictory assumptions? In the first, you assume that productivity is a linear function of N, the number of workers; in the second, productivity has diminishing returns to scale, no?
I'm interested in this in part because of how different the idea "factors are paid their marginal products" is from Marxist ideas about wages (which at some points seem to work according to a linear model.)
Christian