TOP 1000 REVIEWERon 19 March 2013
At the time Robert Skidelsky penned this paean to Keynesian economics and its potential for resolving the prevailing financial crisis, 2010, Labour were still in power and he believed he could see signs of recovery on the horizon. If that's what they were, that's where they remain. On the horizon.
Three years of monetarist policy later, the deficit is growing, the UK has lost its Aaa rating from Moody's, employment is high but wages and productivity are scraping the undersides of the barrel, investment is anaemic, the banks aren't lending and RBS is still a basket case. But Skidelsky cautions against the scapegoating of bankers, the government, and various others, comparing it to pogroms, witch hunts and human sacrifice in the face of harvest failures in years gone by. For starters, he points out, the problem with slamming bankers for lending irresponsibly is that they stop lending altogether.
Skidelsky's verdict on the crash that led to all this is that the powers that be were guilty of a terminal case of groupthink, believing in the sustainability of the boom, trusting in only half-understood systems and market theories of self-correction. The failure, he says, quoting Keynes, was in the "ideas" of economists, some of which he then singles out as particularly misleading if not fully understood, such as rational expectations theory and real business cycle theory which between them led some to believe that "the future was certain, that unemployment was voluntary and that numbers could substitute common sense". But some of the risk models upon which the boom was built had very short memories, factoring in the good times and factoring out the bad.
The problem is, the austerity-based policies now being pursued are based upon the premise of self-correction, whilst what is needed, Skidelsky says, is a stimulus in demand: Paul Krugman has argued for fiscal stimulus based on government spending; monetary policy is riven with uncertainty and in the face of a drought in spending there is insufficient confidence in the market for business investment. Skidelsky takes this argument back to the early 19th century debates between Ricardo and Malthus, in which Ricardo stresses his focus on the long term, with short-term fluctuations effectively noise - things turn out for the good in the end - a position Malthus rejected in practical terms - people live in the here and now, not in the future. Most of us know Keynes's view of the long term.
Overall, Skidelsky's positions are well-argued, and he summarises well some of the main Keynesian principles upon which he bases his arguments, and does the same for some of the neoclassical models with which he takes issue, though sometimes he is quite ruthless in his put-downs, as he does for example with Friedman's theory that workers will voluntarily make themselves unemployed if they think they are being underpaid and wait for a better offer to come along. They don't. Sometimes they sit it out and suffer, sometimes they join a union and go on strike (though not so much nowadays), and sometimes they get a better offer and then they quit. Some of course take a second job, or even a third, and maybe a tiny minority turn to crime. Very few will opt for unemployment as an alternative.
On a few points I would take issue (though very respectfully, of course). The author describes the crash of 2007-8 as a black swan, that is, totally unexpected and unpredictable. As Nouriel Roubini has pointed out, there were plenty of signs things would go and were going wrong. Several years before its error came to fruition, for example, The Economist flagged the perils of HSBC's purchase of a US bank founded on lending to sub-prime customers, based on its low opinion of such businesses. He also makes rather too much, in my opinion, of Keynes's aversion to global trade, a genie which is way too far out of the bottle now. Paul Samuelson, a Keynesian, is on record as describing the principle of comparative advantage (developed by Ricardo, it has to be said) as one of economics' true contributions to social science in helping us understand the benefits of globalisation.
Additionally, he advocates a shift from economics as a glorified branch of maths - like Keynes, apparently, he isn't a fan of econometrics - prompting in me the old joke about there being three kinds of economist, those who can count and those who can't. Instead he suggests combining economics with philosophy and various other subjects. Isn't that called PPE? And isn't that what George Osborne did? I'm currently studying for a Social Sciences with Economics degree, and the economics is very shallow.
Regrettably, whilst the substance of this book is excellent, it has been highly ill-served by the proof-readers. There is throughout a tendency for words to go missing, for letters to go missing from words, and for punctuation to go awry, such as quotations being closed without being opened. Some sentences are so badly mangled that a minor textual analysis is necessary to make sense of them, which detracts from the logical flow of the arguments, and at one point Edmund Burke is made to look only semi-articulate. And the typos are appalling: macroeconomic policy becomes macropolicy policy; on the same line on one page we have a "surfiet" and a "surfeit" (difficult to type as my autochecker corrects the bad one), and two lines down we have "reducation"; elsewhere there is "abudance"; Olivier Blanchard of the IMF becomes Oliver and, in the coup de grâce, the master himself becomes "Keynese"!
When I was at school a Penguin book was the ultimate trust object. This one doesn't deserve to be allowed within three miles of an educational establishment, unfortunately, for fear of the damage it could do to literacy, until it is reissued in recognisable English. Once it is, it will make a very good primer, though from a Keynesian perspective, on the present state of economics.