This an interview with the historian and political economist Robert Skidelsky originally in aired January 2007. Skidelsky discusses Keynes and his biography of Keynes, a work I admire very much (in fact, I always keep that three volume work of Skidelsky close at hand on my desk, for reference). This interview was after the publication of the third volume of this biography:
Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 (vol. 3), Macmillan, London.
I will make some points here:
(1) From 2.15, Skidelsky makes the very important point that governments around the world first started to adopt Keynesian economic principles during the Second World War, and they did so to control inflation and excessive aggregate demand, by eventually contracting demand when wartime command economies had been implemented (a point once made in a similar way by the Austrian economist Ludwig Lachmann which I have discussed here). This is something that is forgotten by many people: Keynesianism is not just about stimulating the economy during times of recession or depression; the important other side of Keynesian demand management is to stop inflationary outbreaks during boom times by reducing the level of aggregate demand.
(2) The nations that used fiscal stimulus on a large scale in the 1930s to end the depression or high unemployment and low growth (what Keynes called an unemployment equilibrium) after the depression were New Zealand, Japan and Germany, as I have discussed here:
The US used moderate fiscal stimulus in the 1930s and the effects were (as you would expect) moderate, rather than the highly successful results seen in, say, New Zealand, with a higher level of stimulus. Sweden in the 1930s also used mild to moderate fiscal stimulus, although its recovery was also helped by abandoning the gold standard, monetary and banking stabilisation, and export-led growth.
(3) I am not convinced by Skidelsky’s explanation of stagflation (from 19.22). My analysis of stagflation is here:
(4) The analysis of US economic policy under Bush is flawed (from 20.09). While fiscal stimulus was certainly used after 2001, the bubble economy of the Bush years was not what is desired by Post Keynesians. Poorly regulated financial markets and aggregate demand pumped up by debt-fuelled asset bubbles constitute what was essentially pre-Keynesian economics.
Please, could you provide a quick summary on Skidelsky's views on the stagflation issue?
I liked your analysis very much, though my macro teacher taught me pretty much the same using simpler explanations. She explained it as an result of an "inflation of supply" (I don't know if it is a proper term, this is a literal translation of a Russian term "инфляция предложения") - basically, just a result of the AS curve moving left in the AD-AS model as a result of a supply shock. I was somewhat baffled at the time why a lot of economists have considered the stagflation to be a crisis of the Keynesianism.
I don't know if she was to be considered a straight neoclassical synthesis Keynesian, though: she taught us various models and tools like AD-AS and IS-LM, but she identified herself with Keynes and Krugman the most.
Skidelsky appeals to deficits and the high US government spending in the 1960s caused by Johnson's Great Society and Vietnam war spending.
I would so not so. It was:
(1) dismantling of US commodity buffer stocks (2) inherent problems of Bretton woods (3) imstability caused by breakup of Bretton Woods (4) supply shocks and speculation on commodities as hedge against inflation driving supply side inflation (5) wage price spirals (6) the oil shocks sent things over the edge
Lord Keynes: While I agree that Skidelsky wrote a masterful biography on John Maynard Keynes, let me warn you that he flops royally on the technical aspects of Keynes. See these links below for more information.
http://www.amazon.com/review/R1O7F1WEIOM56F/
http://www.amazon.com/review/R28MA2K3Z0W4HU/
http://www.hetsa.org.au/pdf-back/30-N-1.pdf
That aside, Skidelsky is to be forgiven, given the limits of his expertise - though he could have consulted more mathematicians on Keynes.
What is your favourite part of the trilogy, though? I personally like Volume III, as it shows Keynes' finest hour. To me at least, the post-war international monetary system SHOULD have been Keynes's ace in the whole, and a complete vindication of his work in monetary economics. But Harry Dexter White and the Americans had to have other ideas...
LK, are you really so desparate that you have to resort to obscure 1930s New Zealand whose economic factors nobody knows nothing about to support your policy? I'd love if you please finally analyzed some more recent example, like the results of keynesian deficit spending in Greece and Italy in 2000s instead.
"What is your favourite part of the trilogy, though?"
I enjoy both vol. 2 and vol. 3.
"To me at least, the post-war international monetary system SHOULD have been Keynes's ace in the whole, and a complete vindication of his work in monetary economics. But Harry Dexter White and the Americans had to have other ideas... "
Indeed. Bretton Woods was not the system of international payments that Keynes really had in mind. Paul Davidson has written on this:
"let me warn you that he flops royally on the technical aspects of Keynes. See these links below for more information."
Those are interesting links.
So we have to aware of the following:
(1) Keynes's contributions to probability theory are not limited to A Treatise on Probability (1921). He also published original work in his theses submitted in 1907 and 1909 at Cambridge University.
(2) As Michael Emmett Brady argues:
"Skidelsky fails to mention anywhere in Volume I that Keynes is the founder of the interval estimate approach to probability.In general,excluding the cases of symmetry and series or sequences composed of homogeneous frequency data,it takes two numbers,not one,to correctly specify an estimate of probability.A probability estimate is thus made up of a lower bound and an upper bound."
http://www.amazon.com/review/R1O7F1WEIOM56F/
"Keynesian probabilities,in general,are intervals.They require the use of two numbers ,not one.The first number is called a lower bound.The second number is called an upper bound.Keynes's approximation method has absolutely nothing to do with ordinal rankings. In fact,the general case occurring among decision makers in the real world would be of overlapping intervals.Consider the following simple example.Let probability one be estimated by the interval[.4,.6].Let probability two be estimated by the interval[.5,.7].The probabilities have very specific numeric bounds,but they are ,in fact,nonrankable,noncomparable and nonadditive"
Bearing in mind that my knowledge of probablity theory is poor, I would also ask: how does Keynes's work on probablity fit in with these different approaches:
(1) Frequentists talk about probabilities only when dealing with experiments that are random and well-defined. The probability of a random event denotes the relative frequency of occurrence of an experiment's outcome, when repeating the experiment. Frequentists consider probability to be the relative frequency "in the long run" of outcomes.
(2) Subjectivists assign numbers per subjective probability, i.e., as a degree of belief.
(3) Bayesians include expert knowledge as well as experimental data to produce probabilities. The expert knowledge is represented by a prior probability distribution. The data is incorporated in a likelihood function. The product of the prior and the likelihood, normalized, results in a posterior probability distribution that incorporates all the information known to date.
"LK, are you really so desparate that you have to resort to obscure 1930s New Zealand whose economic factors nobody knows nothing about to support your policy"
What sort of idiotic statement is this?
Anyone who knows any modicum of economics would be easily capable of looking at the relevant specialist literature on New Zealand's use of fiscal stimulus in the 1930s.
"Were contractionary policies pursued in World War 2 to ensure that industrial output would be diverted to military and not consumer needs? "
Of course, though perhaps it would be better to say that consumption was controlled, factor inputs to war production given priority, taxes imposed and war bonds issued to reduce aggregate demand, and so on.
This is a form of demand management alongside outright central planning of war production.
Lord Keynes: On history of probability theory, you would have to ask Michael Emmett Brady for better explanations, as he has an excellent understanding of mathematics. But from what I know, John Maynard Keynes was once of the Bayesian tradition, but turned against it. I could be wrong however.
As for the fellowship dissertations on mathematics, the technical work in "A Treatise on Probability" is far superior to his fellowship dissertations, because Keynes perfected it. The fellowship dissertations were merely the precursor to the final form.
Exactly. Saying "Who cares about New Zealand?" is essentially an attempt to dismiss evidence without even the pretence of looking at it.
Next it will be: who cares about Sweden, Germany, Japan, ... in fact practically the whole world after WWII, when Keynesian aggregate demand management delivered unparalled prosperity.
when Keynesian aggregate demand management delivered unparalled prosperity. The empirical unity-of-theory-and-practice hic-rhodus-hic-salta, show-me-I'm-from-Missouri proof of (post)Keynesian-functional finance-MMT thought.
But the horrifying reality, the triumph of Maya, of Illusory Being is that there really are people - and lots of them - see William Anderson's blog - who really believe - not having lived through those times - that the post-Reagan post-Thatcher Great Moderation=Great Stagnation was BETTER than the long, happy years before the neoliberal night fell.
Please, could you provide a quick summary on Skidelsky's views on the stagflation issue?
ReplyDeleteI liked your analysis very much, though my macro teacher taught me pretty much the same using simpler explanations. She explained it as an result of an "inflation of supply" (I don't know if it is a proper term, this is a literal translation of a Russian term "инфляция предложения") - basically, just a result of the AS curve moving left in the AD-AS model as a result of a supply shock. I was somewhat baffled at the time why a lot of economists have considered the stagflation to be a crisis of the Keynesianism.
I don't know if she was to be considered a straight neoclassical synthesis Keynesian, though: she taught us various models and tools like AD-AS and IS-LM, but she identified herself with Keynes and Krugman the most.
Skidelsky appeals to deficits and the high US government spending in the 1960s caused by Johnson's Great Society and Vietnam war spending.
ReplyDeleteI would so not so. It was:
(1) dismantling of US commodity buffer stocks
(2) inherent problems of Bretton woods
(3) imstability caused by breakup of Bretton Woods
(4) supply shocks and speculation on commodities as hedge against inflation driving supply side inflation
(5) wage price spirals
(6) the oil shocks sent things over the edge
Lord Keynes: While I agree that Skidelsky wrote a masterful biography on John Maynard Keynes, let me warn you that he flops royally on the technical aspects of Keynes. See these links below for more information.
ReplyDeletehttp://www.amazon.com/review/R1O7F1WEIOM56F/
http://www.amazon.com/review/R28MA2K3Z0W4HU/
http://www.hetsa.org.au/pdf-back/30-N-1.pdf
That aside, Skidelsky is to be forgiven, given the limits of his expertise - though he could have consulted more mathematicians on Keynes.
What is your favourite part of the trilogy, though? I personally like Volume III, as it shows Keynes' finest hour. To me at least, the post-war international monetary system SHOULD have been Keynes's ace in the whole, and a complete vindication of his work in monetary economics. But Harry Dexter White and the Americans had to have other ideas...
LK, are you really so desparate that you have to resort to obscure 1930s New Zealand whose economic factors nobody knows nothing about to support your policy? I'd love if you please finally analyzed some more recent example, like the results of keynesian deficit spending in Greece and Italy in 2000s instead.
ReplyDeleteWere contractionary policies pursued in World War 2 to ensure that industrial output would be diverted to military and not consumer needs?
ReplyDelete"What is your favourite part of the trilogy, though?"
ReplyDeleteI enjoy both vol. 2 and vol. 3.
"To me at least, the post-war international monetary system SHOULD have been Keynes's ace in the whole, and a complete vindication of his work in monetary economics. But Harry Dexter White and the Americans had to have other ideas... "
Indeed. Bretton Woods was not the system of international payments that Keynes really had in mind. Paul Davidson has written on this:
http://www.econ.cam.ac.uk/cjeconf/delegates/davidson.pdf
"let me warn you that he flops royally on the technical aspects of Keynes. See these links below for more information."
ReplyDeleteThose are interesting links.
So we have to aware of the following:
(1) Keynes's contributions to probability theory are not limited to A Treatise on Probability (1921). He also published original work in his theses submitted in 1907 and 1909 at Cambridge University.
(2) As Michael Emmett Brady argues:
"Skidelsky fails to mention anywhere in Volume I that Keynes is the founder of the interval estimate approach to probability.In general,excluding the cases of symmetry and series or sequences composed of homogeneous frequency data,it takes two numbers,not one,to correctly specify an estimate of probability.A probability estimate is thus made up of a lower bound and an upper bound."
http://www.amazon.com/review/R1O7F1WEIOM56F/
"Keynesian probabilities,in general,are intervals.They require the use of two numbers ,not one.The first number is called a lower bound.The second number is called an upper bound.Keynes's approximation method has absolutely nothing to do with ordinal rankings. In fact,the general case occurring among decision makers in the real world would be of overlapping intervals.Consider the following simple example.Let probability one be estimated by the interval[.4,.6].Let probability two be estimated by the interval[.5,.7].The probabilities have very specific numeric bounds,but they are ,in fact,nonrankable,noncomparable and nonadditive"
http://www.amazon.com/review/R28MA2K3Z0W4HU/
Bearing in mind that my knowledge of probablity theory is poor, I would also ask: how does Keynes's work on probablity fit in with these different approaches:
ReplyDelete(1) Frequentists talk about probabilities only when dealing with experiments that are random and well-defined. The probability of a random event denotes the relative frequency of occurrence of an experiment's outcome, when repeating the experiment. Frequentists consider probability to be the relative frequency "in the long run" of outcomes.
(2) Subjectivists assign numbers per subjective probability, i.e., as a degree of belief.
(3) Bayesians include expert knowledge as well as experimental data to produce probabilities. The expert knowledge is represented by a prior probability distribution. The data is incorporated in a likelihood function. The product of the prior and the likelihood, normalized, results in a posterior probability distribution that incorporates all the information known to date.
http://en.wikipedia.org/wiki/Probability#Interpretations
"LK, are you really so desparate that you have to resort to obscure 1930s New Zealand whose economic factors nobody knows nothing about to support your policy"
ReplyDeleteWhat sort of idiotic statement is this?
Anyone who knows any modicum of economics would be easily capable of looking at the relevant specialist literature on New Zealand's use of fiscal stimulus in the 1930s.
"Were contractionary policies pursued in World War 2 to ensure that industrial output would be diverted to military and not consumer needs? "
ReplyDeleteOf course, though perhaps it would be better to say that consumption was controlled, factor inputs to war production given priority, taxes imposed and war bonds issued to reduce aggregate demand, and so on.
This is a form of demand management alongside outright central planning of war production.
Lord Keynes: On history of probability theory, you would have to ask Michael Emmett Brady for better explanations, as he has an excellent understanding of mathematics. But from what I know, John Maynard Keynes was once of the Bayesian tradition, but turned against it. I could be wrong however.
ReplyDeleteAs for the fellowship dissertations on mathematics, the technical work in "A Treatise on Probability" is far superior to his fellowship dissertations, because Keynes perfected it. The fellowship dissertations were merely the precursor to the final form.
@The statement by Anonymous 6:26
ReplyDeleteWhen I once told somebody about the effect of austerity on Latvia, his response was, "Who cares about Latvia?"
Just the exact same response here. "Who cares about New Zealand?"
People really conflate emotional concern for a region with interest in analysis of economic data from the region.
Exactly. Saying "Who cares about New Zealand?" is essentially an attempt to dismiss evidence without even the pretence of looking at it.
ReplyDeleteNext it will be: who cares about Sweden, Germany, Japan, ... in fact practically the whole world after WWII, when Keynesian aggregate demand management delivered unparalled prosperity.
when Keynesian aggregate demand management delivered unparalled prosperity. The empirical unity-of-theory-and-practice hic-rhodus-hic-salta, show-me-I'm-from-Missouri proof of (post)Keynesian-functional finance-MMT thought.
ReplyDeleteBut the horrifying reality, the triumph of Maya, of Illusory Being is that there really are people - and lots of them - see William Anderson's blog - who really believe - not having lived through those times - that the post-Reagan post-Thatcher Great Moderation=Great Stagnation was BETTER than the long, happy years before the neoliberal night fell.