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Read online or download a free book: Keynes: The Return Of The Master

Pages: 256

Language: English

Publisher: Penguin (30 Sept. 2010)

By: Robert Skidelsky(Author)

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Robert Skidelsky's Keynes: The Return of the Master shows how the great economist's ideas not only explain why the current financial crisis occurred - but are our best way out.

'One would expect brokers to be wrong. If, in addition to their other inside advantages, they were capable of good advice, clearly they would have retired long ago with a large fortune'
  John Maynard Keynes

When unbridled capitalism falters, is there an alternative? The twentieth century's most influential economist tells us that there is. John Maynard Keynes argued that an unmanaged market system is inherently unstable because of irreduceable uncertainty; that fiscal and monetary ammunition is needed to counter economic shocks; and that governments need to maintain enough total spending power in the economy to minimize the chance of serious recessions happening.

'The great economist's theories have never been more relevant ... and Robert Skidelsky is the guide of choice ... A must read'
  Paul Krugman, Observer

'Keynes's economic policies helped lift Britain from its 1930s slump. This accessible, timely study argues he could do the same again'
  Dominic Lawson, Sunday Times

'Masterly ... conveys complex ideas with clarity and controlled anger'
  Oliver Kamm, The Times

'Skidelsky knows more about Keynes than anyone alive ... he is righteous in his thunder ... provocative ... refreshing'
  Dwight Gardner, The New York Times

'Thought-provoking ... the best account I have read of the development of the credit crunch'
  Samuel Brittan, Financial Times

Robert Skidelsky is Emeritus Professor of Political Economy at the University of Warwick. His three volume biography of the economist John Maynard Keynes (1983, 1992, 2000) received numerous prizes, including the Lionel Gelber Prize for International Relations and the Council on Foreign Relations Prize for International Relations. He is also the author of the The World After Communism (1995).

"Foreign Affairs" "The book offers clear and cogent critiques of modern macroeconomic thought, along with a brief but useful summary of what went wrong in 2007-9.""Financial Times", October 18, 2010"Skidelsky's succinct, lively, unashamed paean analyses Keynes's core values and offers a persuasive pitch for the contemporary relevance (and necessity) of his ideas."

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  • By Geoff Crocker on 16 November 2010

    Robert Skidelsky is right : we need to restore Keynesian economics to the current debate. Lord Skidelsky has contributed immensely with his monumental three volume biography of Keynes (`Hopes Betrayed', `The Economist as Saviour', and `Fighting for Freedom'). In this shorter book he summarises aspects of Keynes' economic theory. He attacks neo-classical economic theory's assumptions of rational expectations, real business cycle theory, and efficient market theory. He highlights inescapable, irreducible uncertainty as the key Keynesian diagnostic of economic behaviour, leading to Keynes' theory of `Liquidity Preference' whereby actors hold money to allay uncertainty, and thus reduce effective demand, leading to macroeconomic recession. He correctly points out that philosophically this diagnostic of irreducible uncertainty challenges the established Newtonian paradigm.But more importantly he argues the practical superiority of Keynes over monetarist economics. As an economic historian, Skidelsky does this in his core chapter 5 by seeking to demonstrate that the global economy performed better under the Keynesian Bretton Woods period of 1951 to 1973, than under the monetarist free market `Washington Consensus' which replaced it. At this point Skidelsky's admitted lack of economic training and of the mathematical skills he too easily derides weakens his point. He interprets the graph on page 117 of world real GDP growth as two points of high average growth under Bretton Woods and low average growth under the Washington Consensus. A visual and econometric best line fit of this data would show a growth line declining from 1960 to 1985 and then rising, which would undermine this particular aspect of Skidelsky's argument.He emphasises liquidity preference theory which may have addressed the 1930s depression, but does not figure in explaining the current recession, where, on the contrary, households are high in debt rather than in savings. He misses Hicks' `false trading' interpretation of Keynes, whereby actors seeking a market clearing price trade experimentally at other prices, leaving some actors short of market clearing income. He relies to some degree of Leijonhufvud's information failure exposition of Keynes but does not expound this fully.The main conclusion should be that it is Keynes' tool kit, rather than any specific Keynesian policy which needs restoring. Keynesian methodology would be to apply the tool kit differentially to specific situations. Three core Keynesian ideas of relevance today are i) the need for effective demand in the economy to purchase full employment output ii) the realisation that wages are not just a cost of production but also a major component of this demand iii) the definition of money as a virtual artefact, which can be created and destroyed and does not need to be balanced.Skidelsky traces the current recession in standard terms. US banks made excessive house purchase loans to households unable to repay. This drove an asset bubble which burst when the mortgage backed derivatives were traded in a nervous unregulated market. But the best interpretation of the current recession, using the Keynesian toolkit, is that advanced by Thomas Palley in an article Skidelsky quotes briefly on page 178. Palley's argument in his `America's Exhausted Paradigm : Macroeconomic Causes of the Financial Crisis and Great Recession' is that real wages have failed to keep pace with productivity, leading to deficient consumer demand, a gap which has been made up by consumer credit which then becomes un-repayable. Palley's policy solution is to raise real wages. I agree with Palley's analysis, but suggest that advancing technology makes a reduced wage component of GDP inevitable, so that a citizen's income is the only workable solution.Skidelsky ends by calling for a wider university macroeconomics programme to include history and philosophy. Agreed, but the Oxford PPE degree supposedly already offers this, and half the UK cabinet, including the Prime Minister, have taken this degree, without apparently realising the Keynesian diagnostic?

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