Saturday, May 7, 2011

Skidelsky on “The Relevance of Keynes”

Robert Skidelsky has a very good essay on Keynes’s thought and how it applies to the financial crisis of 2008 and the state we find ourselves in today:
Robert Skidelsky, “The Relevance of Keynes,” January 17, 2011, www.skidelskyr.com.
This has also been published as an article:
Robert Skidelsky, “The Relevance of Keynes,” Cambridge Journal of Economics 35.1 (2011): 1–13.
Skidelsky is Keynes’s biographer and his interpretation of Keynes is in fact very close to that of the Post Keynesian school, which is why his work is important. The interested reader looking for something more substantial can also read Skidelsky’s new book Keynes: The Return of the Master (Allen Lane, 2009). A reasonably good summary can be found here:
Keynes: The Return of the Master, Wikipedia.org.
The reaction to this book shows us the schism that runs through modern New Keynesian macroeconomics. First, we have quite positive reviews of Skidelsky’s book by the liberal New Keynesians Krugman and Stiglitz:
Paul Krugman, “Keynes: The Return of the Master by Robert Skidelsky,” Guardian, 30 August 2009.

Joseph Stiglitz, “The Non-Existent Hand,” London Review of Books 32.8, 22 April 2010.
(this also has a letter by the Post Keynesian Paul Davidson clarifying Keynes’s views on uncertainty).
In contrast, we have the conservative New Keynesian N. Gregory Mankiw in a remarkably cold review in the Wall Street Journal:
N. Gregory Mankiw, “Back In Demand,” Wall Street Journal, September 21, 2009.
Mankiw asserts that Keynesianism “is based in part on the premise that wages and prices do not adjust to levels that ensure full employment.” In fact, Keynes also showed that even if wages and prices were flexible, there would still be involuntary unemployment and failures of aggregate demand. The so-called New Keynesian tradition developed by Mankiw and others (which is rather different from the New Keynesianism of Krugman and Stiglitz) is actually a travesty of Keynes’ thought, and part of the problem plaguing modern economics.

4 comments:

  1. On the subject of unemployment and low aggregate demand existing even with flexible wages and prices -

    do you think that if a an economist who never heard of Keynes started from scratch and observed economic data in today's times, he might come to that exact same conclusions about aggregate demand and unemployment?

    Which recent situation shows demand and employment not rising even with flexible prices and wages, to your memory?

    Even if Mankiw misrepresents Keynes, surely he is capable of coming to the same conclusions independently?

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  2. "Which recent situation shows demand and employment not rising even with flexible prices and wages, to your memory?

    Latvia has been subject to severe wage and price deflation:

    http://www.roubini.com/affiliate/google-news/bc47c7de64c752b58227fe71b122112e8ef542bf/analysis/116701.php

    Has this seen a return to full employment equilibrium in the short run? I think not.

    In the "long run"? You would have to wait and see, but I doubt it. And what is the long run any way? 2 years from now? 5 years? 10 years? 50 years?

    In the 19th century when wages and prices were far more flexible involuntary unemployment was still a severe problem.

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  3. “Even if Mankiw misrepresents Keynes, surely he is capable of coming to the same conclusions independently?”

    That is a good question. The answer, in my humble view:

    http://socialdemocracy21stcentury.blogspot.com/2011/05/why-are-so-many-economists-wrong.html

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  4. do you think that if a an economist who never heard of Keynes started from scratch and observed economic data in today's times, he might come to that exact same conclusions about aggregate demand and unemployment? This is more or less what happened in Keynes's time. Michael Kalecki, a Polish Marxist economist, came up with quite similar theories a little earlier than Keynes did. Joan Robinson wrote that the fact that two people had come up with similar theories from different perspectives greatly bolstered the confidence of the early Cambridge Keynesians.

    ReplyDelete