The Return of Keynesian Economics

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Ben Cohen
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by Ben Cohen

Paul Krugman reviews'Keynes: The Return of the Master' by
Robert Skidelsky, and concludes than in the face of a spectacular economic catastrophe, it's Left wing economics that is having the last laugh:

Keynes, it turns out, is having the last giggle. Lucas's "rational
expectations" theory of booms and slumps has shown itself to be
completely useless in the current world crisis. Not only does it offer
no guide for action, but it more or less asserts that market economies
cannot possibly experience the kind of problems they are, in fact,
experiencing. Keynesian economics, on the other hand, which was created
precisely to make sense of times like these, looks better than ever.

However, Krugman warns that interpreting Keynes isn't that easy a task, and opinions differ on what he actually believed about uncertainty (do people behave predictably in a crisis, or are there simply too many unknowns?). In this, he disagrees with Skidelsky (who leans towards the 'unknowns' argument):

I'd point out that behavioural economists, who drop the assumption of
perfect rationality but don't seem much concerned by the essential
unknowability of the future, have done relatively well at making sense
of this crisis; I'd also point out that current disputes over economic
policy, above all about the usefulness of government spending to
promote employment, seem to be primarily about Say's Law – that is,
Keynes 1936.

Regardless, Krugman heralds Sidelsky as a fine writer and contributor to what he calls "the second Age of
Keynes". A Krugman endorsement is good enough for me. I'll be picking up a copy this weekend.