Product Description

Product Details

• Amazon Sales Rank: #3427 in Books
• Published on: 2009-09-15
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 240 pages

Features

• ISBN13: 9781586488277
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
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Review

About the Author

Customer Reviews

What can we learn from Keynes?
Robert Skidelsky is the biographer of John Maynard Keynes and a historian with some background in economics. He divided his book in three parts. In the first part, he examines what went wrong and what this says about the present state of economics. He attacks the rational expectations hypothesis, real business cycle theory and the efficient (financial) markets theory. The main criticism is on the assumption of "Bell-Curve Economics", which describes theories that are based on Gaussian probabilities.

Part II is entitled "The Rise and Fall of Keynesian Economics" and describes Keynes and his economics in the context of the Great Depression. On p. 111-3, Skidelsky points out the difference between today's mainstream macroeconomics and the idea of Keynes. Some of these points could be argued with more clarity. Skidelsky fails to point out the implication of accepting Gaussian probabilities in financial markets, which is that financial markets can not be a source of "instability". However, this implication is probably clear to most economists and Skidelsky writes about this elsewhere (p.44).

In part III, The Return of Keynes, Skidelsky focuses mostly on philosophy and political economy. I reckon that this is the most interesting part of the book for most readers. Skidelsky raises "the old question of whether ideas are part of the base or the superstructure of social life - society's building blocks or weapons in the struggle for power." (p.115) and then continues to compare the ideas and performance of the Keynesian Bretton Woods System (1951-1973) with that of the neoliberal Washington Consensus System (1980-now).

This is followed by a chapter on the ethics of Keynes. Based on the philosopher G.E. Moore, Keynes ponders first the question on ethics "What is good?" and then follows up with questioning morality: "How ought I behave?" (p. 136). Skidelsky thinks that we do not think about the ethic question anymore, and therefore the pursuit of money is all there is: "What should have been a means has become an end", he writes about acquiring money (p.142). Some pages later (p. 187) Keynes ia quoted on what can be understood as a critique of today's market-led globalization: "So, in conclusion, 'Ideas, knowledge, art, hospitality, travel - these are things which should in their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and above all let finance be primarily national."

Summing up, this book reopens forgotten discussions which either still are or have again become relevant. What is the role of the government, of the private sector, of households? How does the international situation play out, how is power projected into the international arena? What are we striving for as human beings, and what is the role of markets in the pursuit of happiness? I am sure many economists will not like this book because they think these questions to be irrelevant and outside the realm of economics. However, reality-based economists will surely find lots of value in this timely book and perhaps the legacy of Keynes is a collection of very relevant questions to which each generation needs to find its own answers.

Worthwhile But Flawed
I am going to be charitable and give this book four stars. Actually Mr. Skidelsky's book has several outstanding positive features. First there is the annunciation and defense of John Keynes economic model including the concept of uncertainty about the future and how this uncertainty effects Investment (or Keynes' investment function and its changeability). John Keynes believed that economic models should reflect reality, even if much mathematical elegance is lost. In the present period when Keynes and much of his concept of uncertainty is often ignored this exposition is highly commendable. Mr. Skidelsky is acutely aware of Keynes' contributions to economics and his role in establ;ishing macroeconomic theory. Mr. Skidelsky is also to be congratulated for his presentation of Keynes' theory of probability with its three types of certainty. This theory is not often found in economic courses. Third, Mr. Skidelsky also presents a wealth of material concerning Keynes and his personal life and views. Mr. Skidelsky demonstrates that Keynes was often the consummate moderate.

Moreover it should be noted that Mr. Skidelsky's work is quite readable, well within the purview of the average reader. And Mr. Skidelsky provides good references to the books by John Keynes.

Yet there are grave deficiencies in this work. First there is the use of the Rational Expectations concept. Far from pervading economics most economic books I have read lately never mention this concept. Of course Keynes never used this concept. Supposedly this concept means consumers and purchasers have a rational expectation of what the future holds. Actually this statement is kind of a junk truism. A person who purchases a radio thinks the radio will actually work (or at least he/she can return it if it does not). But obviously he/she does not really know the future because he/she does not have total knowledge of the product being bought. The consumer only knows the brand name and perhaps its reputation of reliability. Similarly with a consumer who purchases a stock for investment purposes. The consumer may think he/she will probably get a seven percent of so return. But the future remains opaque. As Mr. Skidlesky so readily pointed out economic conditions can change. Moreover maybe unknown to the consumer the stock is really a fraud. Again consumer can only use probabilities based on past experience and present knowledge to determine the future. The expectations are rational only considering the actual knowledge the consumer possesses. Economist Thomas Sowell in his book Knowledge And Decisions points out the role of knowledge. The rational expectations concept in the loose form Mr. Skidelsky uses the term ignores the role of knowledge and how consumers can and often do add to it. Thus rational expectations becomes a nebulous and surreal phantasm.

Then there is the gold standard. For most of his book Mr. Skidelsky neglects the role of the gold standard and the adherence to it by many countries in aggravating the Great Depression. A lot of discussion about the Great Depression concerns money supply. But Mr. Skidelsky does not indicate how the gold standard stopped nations from increasing their supply of money. Finally on page 180 Mr. Skidlesky provides a succinct statement of the effects of the adjustment process under the gold standard. Thus Mr. Skidlesky quotes Keynes that adjustment under the gold standard and fixed exchange rates "is compulsory for the debtor and voluntary for the creditor". The a deflationary bias is built into the gold standard. If Mr. Skidelsky wishes to discuss recent economic history he should utilize much more the valued works of Charles Feinstein, Peter Temin, and Gianni Toniolo The World Economy between the Wars; Barry Eichengreen Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (NBER Series on Long-Term Factors in Economic Development), and Liaquat Ahamed Lords of Finance: The Bankers Who Broke the World among others.

Then there is Mr. Skidelsky's disparagement of the use of mathematics in economics. In some cases Mr. Skidelsky is right. There have been economic models that are over refined with too many variables that can not be measured that have very little theoretical value. However mathematics enables the economic modeler to clarify his economic variables and the relationships between these variables. Mere verbal description can only provide the reader with a small number of economic quantities. And the relationships between even this small number of economic quantities are often nebulous. And economic graphs can distort how quantities relate to each other. Very special cases can be displayed as quite normal on a graph. With mathematics the precise relationships between a large number of variables become apparent. With calculus the rates of changes of economic quantities are within the view of the research. And proper use of statistics and econometrics provide the researcher insight into whether he/she has actually found the right relationships. Mathematics is a very powerful tool that should be in the toolkit of every economist.

In sum, Mr. Skidlesky has written a very informative, worthwhile book, but has made some glaring errors in doing so.

Required reading?
Skidelsky argues, that like Keynes, all prospective economists should study ethics, philosophy, and political economy. I would go further, and say that society would benefit if the chapter on "Keynes and the Ethics of Capitalism" were required reading by everyone with sufficient education to comprehend it. The book has concise, insightful analyses of the current economic crisis and of the Great Depression. As a college student of the 1960's, who learned Keynesian economics through the introductory Samuelson text, I learned very little about economic theory that I didn't know, but I blame this on the profession, not Skidelsky. Not emphasized then was that the government and Federal Reserve have to be very wary of the impact of their decisions on inflationary expectations. Those readers who have read Taleb's book "The Black Swan" will find several of Taleb's ideas here, and he is referenced several times, once incorrectly (p.43) - but the importance of uncertainty as contrasted to probabilistic risk turns out to be a central idea of Keynes.