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Pages: 256

Language: English

Publisher: PublicAffairs; Reprint edition (26 Oct. 2010)

By: Robert Skidelsky(Author)

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In the debris of the financial crash of 2008, the principles of John Maynard Keynes,that economic storms are a normal part of the market system, that governments need to step in and use fiscal ammunition to prevent these storms from becoming depressions, and that societies that value the pursuit of money should reprioritize,are more pertinent and applicable than ever. InKeynes: The Return of the Master , Robert Skidelsky brilliantly synthesizes Keynes career and life, and offers nervous capitalists a positive answer to the question we now face: When unbridled capitalism falters, is there an alternative?

"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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