The Return of Keynesian Economics

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.

Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.