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> I wasn't talking about "base metals and relatively simple manufacturing". Were you? A whole lot of the decline that we're talking about has been in those sec

by mlyle 2y ago

> I wasn't talking about "base metals and relatively simple manufacturing". Were you? A whole lot of the decline that we're talking about has been in those sectors. Microchips and aerospace grew; simple consumer goods and steel manufacturing fell through the floor. > The behavior of markets assumes free choices by participants t... Incentives can be, and often are misaligned. However, the context of our discussion is talking about large overall economic growth that has outpaced manufacturing growth, even though it is still positive. This isn't evidence of misaligned incentives. > In your unit 3, do you draw LRATC curve as a parabola? Because that's the wrong shape for manufactured goods. It's absolutely a bathtub. It's steep-downward sloping, mostly flat for a loooooonnnggg time, and then upward sloping. Indeed, this understanding of the shape of LRATC originally comes from study of manufactured goods. At some point coordination gets hard and further increases in quantity require using resources that are not well suited for the task. Of course, the quantity at which costs slope upwards may be at an impractically large quantity for any industry-- in which case that industry is likely to be a natural monopoly. And there are some recent arguments that coordination is easier thanks to information technology and that it is even harder to reach diseconomies of scale.

mitthrowaway2 2y ago
> It's absolutely a bathtub. I endeavour to convince you that you are teaching your students a falsehood. Natural resource industries have bathtub-shaped average costs. Average costs fall strictly monotonically for manufacturing, and marginal costs either fall or remain constant. Constant marginal costs are what you get if you don't even bother to solve coordination problems, and just copy-and-paste your whole assembly line instead (except even then you can't help but gain economies of scale, if only from your tooling suppliers). The misconception that it's a bathtub does not come from the study of manufactured goods, it comes from thought experiments about manufactured goods done by people who never managed quote requests at a real factory. Empirical studies done on actual firms almost never show rising marginal costs at any quantity. That this error has permeated introductory economics is a very, very big problem.
- mlyle 2y ago
  > Constant marginal costs are what you get if you don't even bother to solve coordination problems You still have coordination problems on the supply and distribution side. > Average costs fall strictly monotonically for manufacturing This is an extraordinary claim that is easy to refute with simple thought experiments. e.g. You think that if I want 103% of the units that a set of equipment from ASML can deliver, that average costs will be lower than producing 100%? Or do you mean "strictly monotonically" in some other sense? Being able to vary your capital in the long run doesn't mean that you can have 10.3 sets of photolithography apparatus. > and just copy-and-paste your whole assembly line instead If you copy and paste and have everything truly independent, without the need for any coordination of resources, what you effectively have is multiple firms. In practice, firms still need to allocate scarce resources among lines. > The misconception that it's a bathtub does not come from the study of manufactured goods , it comes from thought experiments about manufactured goods This is a falsehood. Bain conducted reams of real-world research on manufacturing, plant size, firm size, and returns to scale, and this informs today's idea of LRAC. Of course, this research is 70 years old, and recent data is more ambiguous. As I've said, some believe that information technology has changed everything.
  - dr_dshiv 2y ago
    I’ve been interested in Henry Charles Carey, the chief economic advisor to Abraham Lincoln. He wrote a book called the “Harmony of Interests” about the need for state policy + markets (to contrast with purely free markets). Lots of data and rigorous argumentation. Apparently this was known as the “American School” of economics — and it dominated from the mid-late 1800s for over a century.
  - kragen 2y ago
    it seems that you both agree that it depends on the timescale; asml's next model of machine may be able to produce 10% more, or 91% less, and in either case that extra 3% of your demand will lower the average costs
- labcomputer 2y ago
  > and marginal costs either fall or remain constant Not true. If your factory can make N widgets per year, and you want to make N+1 widgets, the marginal cost of the N+1th widget is vastly greater than the Nth widget.

by mlyle 2y ago

mitthrowaway2 2y ago

> It's absolutely a bathtub. I endeavour to convince you that you are teaching your students a falsehood. Natural resource industries have bathtub-shaped average costs. Average costs fall strictly monotonically for manufacturing, and marginal costs either fall or remain constant. Constant marginal costs are what you get if you don't even bother to solve coordination problems, and just copy-and-paste your whole assembly line instead (except even then you can't help but gain economies of scale, if only from your tooling suppliers). The misconception that it's a bathtub does not come from the study of manufactured goods, it comes from thought experiments about manufactured goods done by people who never managed quote requests at a real factory. Empirical studies done on actual firms almost never show rising marginal costs at any quantity. That this error has permeated introductory economics is a very, very big problem.

mlyle 2y ago
> Constant marginal costs are what you get if you don't even bother to solve coordination problems You still have coordination problems on the supply and distribution side. > Average costs fall strictly monotonically for manufacturing This is an extraordinary claim that is easy to refute with simple thought experiments. e.g. You think that if I want 103% of the units that a set of equipment from ASML can deliver, that average costs will be lower than producing 100%? Or do you mean "strictly monotonically" in some other sense? Being able to vary your capital in the long run doesn't mean that you can have 10.3 sets of photolithography apparatus. > and just copy-and-paste your whole assembly line instead If you copy and paste and have everything truly independent, without the need for any coordination of resources, what you effectively have is multiple firms. In practice, firms still need to allocate scarce resources among lines. > The misconception that it's a bathtub does not come from the study of manufactured goods , it comes from thought experiments about manufactured goods This is a falsehood. Bain conducted reams of real-world research on manufacturing, plant size, firm size, and returns to scale, and this informs today's idea of LRAC. Of course, this research is 70 years old, and recent data is more ambiguous. As I've said, some believe that information technology has changed everything.
- dr_dshiv 2y ago
  I’ve been interested in Henry Charles Carey, the chief economic advisor to Abraham Lincoln. He wrote a book called the “Harmony of Interests” about the need for state policy + markets (to contrast with purely free markets). Lots of data and rigorous argumentation. Apparently this was known as the “American School” of economics — and it dominated from the mid-late 1800s for over a century.
- kragen 2y ago
  it seems that you both agree that it depends on the timescale; asml's next model of machine may be able to produce 10% more, or 91% less, and in either case that extra 3% of your demand will lower the average costs
labcomputer 2y ago
> and marginal costs either fall or remain constant Not true. If your factory can make N widgets per year, and you want to make N+1 widgets, the marginal cost of the N+1th widget is vastly greater than the Nth widget.