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.