Friday 20 July 2012

A picture for Bob Murphy

Since I'm too lazy to use this blog for blogging, I might as well use it to illustrate the comments which I post on other blogs from time to time. This picture explains why I think Bob Murphy is doing Paul Krugman an injustice in this post. The picture shows how real GDP shrinks when Romney supporter John Q. Wheelerdealer reduces his input to the economy in disgust at the antics of President B. Hussein Obama. As I say in comments:
Krugman is applying the Envelope Theorem correctly: the difference between the income which WheelerDealer foregoes by going Galt and the reduction in national income is approximately zero. Not exactly zero, because there’s a small ‘triangle’ [see picture] under the marginal productivity curve with area 0.5 x dL x dW, where W is WheelerDealer’s real wage and L his input.