Keynes: The Return of the Master
by Robert Skidelsky
Recommendation: read (buy here).
(It’s Keynes Week here at wmbriggs.com!)
The book’s tag-line is, “Why, sixty years after his death, John Maynard Keynes is the most important economic thinker for America.” Whether or not that is so, it is true that Skidelsky’s admiration of the “master” borders on idolatry.
Which is not a bad thing, because we know exactly what we’re getting. Mostly. Because Skidelsky can’t help but sneak in his own politics occasionally. We hear that the current economic system is “unjust”—that ever dangerous word—that budget deficits are caused by defense and war spending but not by increased “entitlements”, that we promote the “rape of nature”, that the level of “useless consumption” is too high, and so forth. However, we know our author is a modern academic, so we reflexively discard these distractions and get to the good stuff.
And there’s plenty. The chapters summarizing “The Crisis” are so well written that the words pour off the page right into your head. As do his descriptions of the two main ivory tower rivalries, which he labels, quoting Robert Waldman, Freshwater and Saltwater, or his own New Classical and New Keynesian. It is his contention that the Friedmanites have not advanced much beyond Adam Smith and Say’s Law. But he also chides New Keynesians for abandoning the faith. They are not true Keynesians, and their theories and methods differ so little from Classicalists that their spats are “in the nature of family disputes.”
Both schools have abandoned ethics, morality, epistemology, and common sense and have become a branch of Applied Mathematics too much in love with theory. By which he means the wrong theory. But I’m with him, because the same problems are found in my own field. He suggests economists are lost in admiration of the beauty of their models, so much so that they shun intrusions of reality. Take the rational expectations hypothesis and real business cycle theories as examples. These obviously false, but oh so pretty, theories form the basis of endless papers and tenure decisions.
But forget all that, and let’s get to the real question. What would Keynes do?
Keynes believed that the goal of life was not to create wealth, but to live “wisely, agreeably, and well.” He believed that “statistical information in the hands of the philosophically untrained was a dangerous and misleading toy.” And he strongly believed that people were far, far too certain of themselves (see yesterday’s post). To all of which we say, Amen, brother!
At the start, he rejected Bentham’s hedonistic utilitarian calculus. He said that Benthamism was “the worm which has been gnawing at the insides of modern civilization and is responsible for its present decay.” Keynes did not believe it was possible to calculate “happiness,” nor was it desirable to do so, nor should economic policy be designed in its name.
He opted instead for G.E. Moore’s ethics, which sought to increase the amount of good. Not that that concept is without difficulties, but Keynes felt it was defensible. Among the good: love of knowledge, being in love, “experiencing aesthetic emotions”, and such like. Pleasure, to counter Bentham, was external. Being in love “is a source of both pleasure and pain.” To know what is good is not an empirical question: no amount of data will ever help answer it.
Conspicuously, and thankfully, absent from Moore’s list is “justice”, though Keynes took it up in his idea of a “just price,” by which he meant a “fair” price. Skidelsky claims this idea “has long been banished to the attics of economics.” But we often hear condemnations of price gouging, monopolies are typically disallowed, and several sectors of the economy, such as utilities, have their prices heavily regulated. Anyway, Keynes only meant that rational people have an intuitive grasp of what is fair and what is not.
Keynes married his basis of ethics and morality with his brilliant understanding of probability and uncertainty, and from this flowed his theory of economics. Skidelsky spends a lot of time describing these foundations because he feels, probably rightly, that they have been forgotten or neglected. He also outlines Keynes’s economic theory, which is covered in enough other places we needn’t repeat it here.
Still, what do we do now? Regulate, says Skidlesky. Spend, and embrace deficits. He provides a sketch of ideas that should be implemented forthwith. Now, I do not have the expertise to judge whether these ideas are what Keynes would advocate or not. What is clear is that Skidelsky has forgotten his master’s warning about excess certainty. Plus, and although he didn’t mean for this to happen, he puts the reader on the hunt for unresolved foundational difficulties, of which there are many.
For example, terminology is a huge problem. Keynes and every other economist always use the term “full employment”, which has a technical definition, and which is everywhere assumed to be good. But nowhere is that assumption justified, or even explained. It’s just taken for granted. It might even be true, or obvious to economists, but I don’t see it.
“Equilibrium” is yearned for—economists are passionate about having it—but nobody offers what it means empirically. This feels like economists have had just enough physics to be dangerous.
And then there’s “inequality”, perhaps the most dangerous, certainly the bloodiest, idea ever had by man. But just what is that? Anybody care to answer?