Think of the current recession as the mother of all hangovers. The World economy has been partying insanely for the best part of a decade - busily borrowing, spending, investing and speculating without real regard to what economists like to call 'the fundamentals'. In other words by failing to address the risk attached to a given activity in relation to a possible return; institutions and individuals have spent money to no good purpose whilst at the same time racking up huge debts. Hence the big headache the morning after.
So,Governments, businesses and me if not you, have been binging on cheap credit. Eventually, the party has to stop when the money runs out. The waiter of doom presents his bill. Governments who have run big budget deficits have racked up massive interest charges on loans face huge problems as do the citizens in their care. Governments like Greece are faced with debt default, firing civil servants, begging from the European Central Bank or World Bank,cutting back on services and raising taxes. Their citizens are faced with higher unemployment, wage cuts, inflation and failing public services. Businesses find profit margins squeezed, reduced sales revenues and rising input costs. It's a big mess and possibly it's going to get messier before much longer. But what to do about it?
After a period of heavy indulgence its fairly normal for the patient to go on a diet - lose a bit of weight and generally reform previous bad behavior, at least for a while ,until normal vigor is restored. 'Keynes -Return of the Master' is a detailed analysis of why the market cannot be left to itself to clear the debris up the morning after the economics party is over.
Markets according to 'libertarian' economists function well, providing their are left alone by government. Unemployment high?:wage rates fall, employers take on more staff-end of problem. Over supply of goods and services?: prices fall, demand picks up-no problem. In other words markets will adjust and eventually confidence, investment and spending power will return to the market and all will be well. Keynes saw things differently. The market can and will fail. In fact the natural state of the market is not full employment and full use of resources. In fact markets have pronounced weaknesses. Prices and wages are 'sticky downwards'. The herd mentality of investors,consumers and businesses mean that they will not act 'rationally' - that's why 'asset bubbles' form. Worse still,no one can be certain of the future. This is fundamental. If you can't predict the future then you can't put a price on risk. if you could, interest rates would have been a lot higher in the USA and Europe a lot sooner and the easy credit to the Sub- Prime market would never have happened.Keynes was arguing for governments to provide the missing spending power that occurs during recessions in order restore markets, create employment and prosperity. Keynes was not a socialist- he was however a moralist. For him, one of the purposes of economic management was to create wealth, opportunity and well being but not just for the elite but for all citizens.
This is highly readable account of the age old Monetarist v Keynesian debate.There is some technical matter to attend to but not enough to cause indigestion to the non- specialist. It's also a biography. Keynes was definably what used to be called a 'man of parts'. A brilliant author and debater, a key government adviser from the end of the First World War onwards, a hugely successful on occasion) investor as well an original thinker of almost unparalleled depth and breadth. He may not be currently fashionable , but his influence is every where and given the depth of problems that Western economies are facing right now, it may not be long before his name is again center stage for policy makers.
The aspiring economist will gain from this book is the chance to enter the debate: Is changes in money supply more important than changes in savings and investment stimulating growth, Should governments spend and tax to adjust for cyclical changes in the economy- if so does this imply that economists should accept a moral responsibility to 'price in' the effects on society of policy changes? Does the emphasis on mathematical analysis in Economics ignore the stumbling block that is 'uncertainty' in assessing risk? Economics invites discussion, opinion and dispute. Read this book and get stuck into some fascinating issues
Question: If Keynesian economics was so 'useful' why did people like Margaret Thatcher and Ronald Regan drop it for the 'Free Market'approach?
Topics covered: Great Depression, current economic situation : causes , effects and policy strategy. Looks in detail at the strengths flaws in the Monetarist /Free Market models in comparison to Keynesian analysis and policy prescriptions. Also an in-depth examination of Keynes view of markets suggesting that governments need to regulate 'Animal Spirits' and be ready to step in when the economy starts to get out of kilter. Also interesting there is an interesting study of Keynes views on Ethics and Economics with reference to G.E Moore which may be useful many Philosophy students.
Type of Read: Appropriate adjectives: Enjoyable, challenging and rigorous. The author has the happy knack of presenting complex arguments in a clear and absorbing fashion, no attempt at 'dumbing down' here. Students of Politics, Economics and History would find 'The Return of the Master' a compelling read. Even if you think you know your 'Keynes', be prepared to have your understanding enriched. Recommended? You bet