Ritchie disproves Keynesianism

So he starts playing around with GDP identities and so on and manages to come to a quite remarkable conclusion:

The first, and most obvious, is that government investment does not impact consumption. (C) is not a component in this identity.

Be news to all of those who believe in Keynesian economics really. For why does the government invest in a down turn? Because the people who get paid to do the infrastructuring go off and spend the money leading to a rise in demand…..and, of course, that’s also a rise in consumption.

It also, of course, entirely kills his own (snark) idea of PQE. Because we go and spend all that money on building houses and green stuff and no one spends the wages they receive (a necessary condition of there being no change in consumption) and thus that investment isn’t a fiscal stimulus. And yet the very reason we want the PQE, according to Ritchie, is for it to be stimulatory. But it can’t be because government investment doesn’t change consumption.

What’s happened here is that Ritchie doesn’t know enough economics to realise when he’s making odd statements. Bit like in maths, you’ve got to be aware that when your result is 1=2 that the error is somewhere further up in the chain of reasoning.

Government investment doesn’t change consumption? Then why the hell do we bother with it then? Or more accurately, anyone making that statement really should stop and go back and see where their error is.

To this point I should add that there is nothing exceptional about what I have noted: this is pretty basic economics. I have no idea whether what follows is normal or not: I haven’t bothered to search the literature to find out. It’s my analysis using the arguments to this point as a starting point.

Well, yes……

25 thoughts on “Ritchie disproves Keynesianism”

  1. “[D]oes not impact consumption”. Once more we find US usage from someone who disapproves of the US model. I wonder how many of Bruce Springsteen’s vastly overrated albums he has.

  2. A long post in the TRUK blog (one of the longest I have ever seen) but also one of the most hapless – Mathematical approaches to economics are fraught with peril for those with a deep and complex understanding of the subject. When you have no understanding and indeed are quite openly contemptuous of even basic knowledge in the discipline:

    ‘this is pretty basic economics. I have no idea whether what follows is normal or not: I haven’t bothered to search the literature to find out. It’s my analysis using the arguments to this point as a starting point’

    It’s little surprise the results are so catastrophic – as the excellent dearieme points out – it is akin to shooting fish in a barrel.

    Perhaps even better is this:

    ‘There is one important thing to add at this juncture though, based on the economic climate that has prevailed since 2008, which cannot be ignored if we are going to suggest which, if any of these factors is more important than the others. This additional factor is that there is now and has been for some time spare capacity in the UK economy.’

    So no mention of acute Labour shortages being reported across a whole raft of industries, and by almost every collective organisation for business in the UK. But then this is par for the course. The man lives in the biggest bubble of ignorance i have seen anywhere. The great news is while he remains as close to pure evil as anyone we are likely to see in the blogosphere, his backing of Smith is likely to destroy his credibility with the Corbynite Left so he may be persona non grata across the political spectrum shortly…..

  3. “I have no idea whether what follows is normal or not: I haven’t bothered to search the literature to find out. It’s my analysis…”

    Is he trying to make it look like he is some sort of unique genius who solves this stuff from first principles and doesn’t bother reading what anyone else has ever thought about the subject, ever?

    Yet in reality he is completely ignorant by his own admission and his ‘analysis’ leads him to put his economic y-fronts on back to front, outside his trousers.

  4. The Meissen Bison

    Rob: and his ‘analysis’ leads him to put his economic y-fronts on back to front, outside his trousers.…without taking the trouble first to go into a phone-box so as not to offend public decency.

  5. Somewhere there are groups of Murphy’s hapless students alternately weeping with laughter at this and weeping with self-pity that they applied for his course and did not change asap when they realised just how ignorant and self-preening he is.

    If only he could be persuaded to divert his intellect to knock up a viable plan for a nuclear fusion power plant on the back of a napkin while eating his ploughman’s one lunchtime.

  6. @BraveFart

    But are there such students? They may (like Murphy’s usual devotees) be simply being told what they desperately want to believe, no matter how bat-shit crazy it is and how stupid they will feel a few years down the line when reality kicks in.

    Has anyone actually met with any of his students?

  7. His tombstone

    Here lies Richard Murphy
    xx.xx.xx
    ‘He didn’t bother to search the literature’

  8. Bloke in Costa Rica

    “Somewhere there are groups of Murphy’s hapless students alternately weeping with laughter at this and weeping with self-pity that they applied for his course and did not change asap when they realised just how ignorant and self-preening he is.”

    Unlikely. We can gain some insight into their intelligence and critical faculties by dint of the fact they’re at that august institution of academe, City University.

  9. that is the worst case of attempting to infer causal relationships from accounting identities that I have ever seen.

  10. Has he sent his musings to Simon Wren-Lewis, who seems rather proud of this credo, on the mainly macro blog….? Fwiw, SWL seems full of shit, talking about infrastructure investment when there is no capacity in the industry strikes me as insane.. At least I earn my living through my natural endowment.

  11. E = mc^2
    also, E = 1/2 mv^2
    therefore, v^2 = 2 c^2
    v = sqrt(2) c

    I could go into differential calculus here, but it’s sufficient for my purposes to point out that sqrt(2) > 1. Therefore, faster-than-light travel is not just possible but inevitable.

  12. SJW: Therefore, faster-than-light travel is not just possible but inevitable.

    Does this mean that you’re not going to make the world a better place tomorrow but yesterday?

    Or that you are a sqrt (chiz chiz)?

  13. (pedant mode)
    E=mc^2 is total energy conversion from matter, where E=(mv^2)/2 only applies to kinetic energy, so the equality is not valid.

    In related news, you can prove 1 = 2 fairly easily:

    let x = y
    multiply both sides by x, then: x^2 = xy
    subtract y^2 from both sides: x^2 – y^2 = xy – y^2
    factorise: (x+y)(x-y) = y(x-y)
    remove common factors: x+y = y
    but x = y so: x+x = x
    or: 2x = x
    divide by x: 2 = 1

  14. Rational Anarchist

    I am not very good at this sort of thing, would you mind showing me where that’s wrong?

  15. You can see it quite easily if you put some numbers in. Suppose x = 3, then the you get:
    3 = 3
    3^2 = 3×3
    3^2 – 3^2 = 3×3 – 3^2
    (3-3) (3+3) = 3 (3-3)

    This is the key. 6 x 0 = 3 x 0. The next step just takes out the 0s, which is cheating. It’s not easy to see without having had someone point it out to you (in my case a lecturer at University).

  16. Bloke in Costa Rica

    Strictly speaking, the m v²/2 K.E. is just the second term in the binomial expansion of the total energy E = m₀ c²/√(1 – v²/c²), the first term of which is m₀ c², the rest mass energy. The next term is 3 m v⁴/c². Kinetic energy is m₀ c²(γ – 1). But I knew what SJW was on about.

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