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Lord Robert Skidelsky

"Are we doomed to rehearse the same arguments time and again? "

In Keynes's Footsteps

Several articles by Robert Skidelsky
Project Syndicate, April 3, 2013

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The Keynes comeback
A trio of new books celebrate the man and declare victory for his ideas
“This present crisis is a crisis of systemic ignorance not asymmetric information.”
The Economist print Oct 1st 2009

Keynes: The Twentieth Century’s Most Influential Economist.
By Peter Clarke. Bloomsbury; 224 pages; £16.99. To be published in America in November. Buy from

Keynes: The Return of the Master. By Robert Skidelsky.
PublicAffairs; 240 pages; $25.95. Allen Lane; £20. Buy from,

The Keynes Solution: The Path to Global Economic Prosperity. By Paul Davidson.
Palgrave Macmillan; 208 pages; $21.95 and £14.99. Buy from,

The idea of uncertainty and its connection with confidence rings truer after the happenings of the past year. But it is a concept that sits ill with the theoretical underpinnings of modern macroeconomics. And that, Mr Skidelsky says, is the real problem. By ignoring irreducible uncertainty, modern economics had gone fundamentally off course. Those intellectual errors, in turn, prompted huge policy errors, such as relying on deregulated financial markets. “This present crisis”, he thunders, “is a crisis of systemic ignorance not asymmetric information.”
Mr Skidelsky’s desire to refocus Keynes’s legacy is legitimate. And his criticism of modern macroeconomics is withering.

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Robert Skidelskys kommande bok Keynes: The Return of the Master
kommer att publiceras på svenska i början på nästa år av
Karneval förlag

The new assault was led by Milton Friedman and followed up by a galaxy of clever young disciples
Adaptive Expectations, Rational Expectations, Real Business Cycle Theory, Efficient Financial Market Theory – they all poured off the Chicago assembly line, their inventors awarded Nobel Prizes
Then along came the almost Great Depression of today
Robert Skidelsky, Financial Times June 9 2009

Lord Skidelsky’s ‘John Maynard Keynes: The Return of the Master’ will be published by Allen Lane in September

For 30 years or so Keynesianism ruled the roost of economics – and economic policy.
Harvard was queen, Chicago was nowhere.
But Chicago was merely licking its wounds. In the 1960s it counter-attacked.
The new assault was led by Milton Friedman and followed up by a galaxy of clever young disciples.

What they did was to reinstate classical theory. Their “proofs” that markets are instantaneously, or nearly instantaneously, self-adjusting to full employment were all the more impressive because now expressed in mathematics.
Adaptive Expectations, Rational Expectations, Real Business Cycle Theory, Efficient Financial Market Theory – they all poured off the Chicago assembly line, their inventors awarded Nobel Prizes.

No policymaker understood the maths, but they got the message: markets were good, governments bad. The Keynesians were in retreat. Following Ronald Reagan and Margaret Thatcher, Keynesian full employment policies were abandoned and markets deregulated.
Then along came the almost Great Depression of today and the battle is once more joined.

Haunters of the blogosphere will know that the main ground of the current engagement is about the effect of the “stimulus”. FT readers will have caught a faint whiff of the intensity of this battle in Niall Ferguson’s column of May 30, headed “A history lesson for economists in thrall to Keynes”. Prof Ferguson and Paul Krugman, the economist and New York Times columnist, had previously locked horns at a public symposium in New York on April 30. The historian had asserted that large fiscal deficits would push up long-term interest rates. This implied they would have a zero stimulatory effect: public spending would simply “crowd out” private spending.

An enraged Mr Krugman responded on his blog that Keynes had proved that such crowding-out could occur only at full employment: if there were unemployed resources, fiscal deficits would not drive up interest rates without also expanding the economy. Prof Ferguson’s ignorant remarks only confirmed that “we’re living in a Dark Age of macroeconomics, in which hard-won know-ledge has simply been forgotten”.

However, this is not a debate between economists and historians. It is a battle within the economic profession – between the New Class-ical Economists and the New Keynesians. What is fascinating is that it is an almost exact rerun of the debate between Keynes and the British Treasury in 1929-30.

The Treasury view was that bond-financed public spending was bound to diminish private spending by an equal amount.
Keynes replied that if this were true it would apply to any new act of private spending.

Are we doomed to rehearse the same arguments time and again?

Keynes’s view was that we need different economic models at different times. The beauty of his General Theory of Employment, Interest and Money was that it was general enough to accommodate a variety of models applicable to different conditions. Markets could behave in ways described by the classical and New Classical theories, but they need not.

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Keynes: The Return of the Master
“Why did no one see the crisis coming?”, Queen Elizabeth asked
A seminar at the British Academy tried to answer and the FT has taken up the discussion.
Robert Skidelsky, FT, August 5 2009

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Bring back Keynes
Keynesian economics has been in retreat politically and theoretically for 25 years.
If the Keynesians can learn from their critics and curtail their ambitions,
a modest rehabilitation is now appropriate
Robert Skidelsky, May 1997

Future generations will curse us for cutting in a slump
In 1937 Keynes wrote: “The boom, not the slump, is the right time for austerity at the Treasury.” Jean-Claude Trichet disagrees.
Robert Skidelsky and Michael Kennedy, FT July 27 2010


Failure to address the deficit is the greatest danger we face,” said UK Treasury minister Lord Sassoon in the House of Lords on Monday, faithfully echoing the words of his master, chancellor George Osborne. But beyond vaguely referring to the need to restore “confidence”, none of the cutters can explain how reducing public spending when private spending is already depressed will “consolidate recovery”.

By contrast, Keynesian theory can readily explain why it will not. The government, Keynes argued, is the only agency that can prevent total spending in the economy from falling below a full or acceptable employment level.

The deficit has the function of sustaining the level of total spending and output in the economy.

Any attempt to reduce it before a strong momentum to private sector recovery is established will make matters worse.
Once the economy has started to grow, the deficit incurred during the recession will automatically shrink to a pre-recession level. Deliberate steps to eliminate the “structural” (ie non-recession induced) deficit should be postponed until the recovery is firmly entrenched.

The Keynesian theory contradicts the Osborne-Trichet doctrine that private spending is depressed because of fears about the sustainability or future cost of the deficit.
The correct causal explanation is that private spending is depressed because total demand in the economy is depressed.
The deficit is the consequence, not the cause, of depressed business expectations.

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The great austerity debate

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Davidson, Galbraith, and Skidelsky declined to sign due to a difference of opinion on deficits. Their position is outlined below
Our reservations centered on one sentence, namely, "We recognize the necessity of a program to cut the mid-and long-term federal deficit.. "
Since we do not agree with this statement, we could not sign the letter.
Huffington Post 26/7 2010

We three were each asked to sign the letter organized by Sir Harold Evans and now co-signed by many of our friends, including Joseph Stiglitz, Robert Reich, Laura Tyson, Derek Shearer, Alan Blinder and Richard Parker. We support the central objective of the letter -- a full employment policy now, based on sharply expanded public effort. Yet we each, separately, declined to sign it.

Why do we disagree with this statement? The answer is that apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no "necessity [for] a program to cut the mid-and long-term deficit."

On the contrary: If unemployment can be cured, the deficits we presently face will necessarily shrink This is the universal experience of rapid economic growth: tax revenues rise, public welfare spending falls, and the budget moves toward balance. There is indeed no other experience in modern peacetime American history, most recently in the late 1990s when the budget went into surplus as full employment was reached.

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At the recently completed Fifth Post Keynesian Workshop in Knoxville, Tennessee, Robert Skidelsky made a point that Lynn Turgeon has made on occasion.

It is that the earliest proposal for an entity resembling what the European Union is becoming was made in July, 1940 by Hitler's Minister of Economy, Walter Funk, the so-called Funk Plan.

It was proclaimed to be a postwar system that would involve a multilateral clearing mechanism in Berlin in a free trade zone.

Keynes developed his clearing mechanism proposal largely in response to this and incorporating elements from the existing Schachtian system under German control. Keynes's proposal became the basis for British proposals at Bretton Woods that were vetoed by Harry Dexter White of the US (curiously enough a Soviet agent).
They would later resurface as the predecessors of the EU were developed.

Skidelsky noted that many of the actual authors of the Funk Plan were technocrats whose main concern was a Franco-German economic union and that some of these individuals were involved in the negotiations for the European Coal and Steel Community (ECSC), the original predecessor out of which the EU ultimately evolved.