This Master’s Voice

Why Keynes reigns. And why that’s no reason to adopt his economics lazily.

Over-spending governments, to steal the long-running words of a dead adman, tend to use Keynes like a drunk uses a lamp-post—for support rather than illumination. And with Keynesian stimulation still the rage across economies in the throes of The Great Recession, no book illuminates the idea’s theoretical basis better than Keynes: Return of the Master, written by Robert Skidelsky, an eminent biographer of the dead economist.

It’s amazing how many dead economists have been fascinated by India. In 1776, Adam Smith, the thinker who convinced the West that individual pursuit of self-interest yields collective welfare, looked at India and wondered whether it works if people don’t even want to ‘better their condition’. Some 150 years later, John Maynard Keynes drew a key insight from India that would shake up the idea that the Market is invariably best left to itself. People clutch cash to their bosoms, he noted, because of ‘uncertainty’. Cash kept idle tends to slow down overall demand, investment and the economy. At such times, the State must spend freely and lend money cheaply to get things moving again.

America’s Market devotees forgot their Keynes a long time ago. Worse, as Skidelsky tells it, they confidently mistook ‘uncertainty’ (which is neither measureable nor manageable) for ‘risk’ and screwed up spectacularly.

As a refresher course, this book is fabulous. It would’ve been far more valuable, though, had Skidelsky not been so dismissive of the Supply Shock Caveat. Cash boosters are all very good, but if essentials are in short supply (oil, food, etcetera), any extra cash chasing them can set off inflation. And shortages in India do persist. Also, in a highly hierarchical economy, the rippling effects of the ‘money illusion’ (your rupee is already worth less than you realise) may suit those who first get the cash, before prices flare, but is awfully unfair on those further down the payment pyramid, who get much less than their bargain. It’s a trick unforeseen by ‘The Master’. His return leaves me a Keynesceptic at least on that score.

Anyhow, what animates this book is Skidelsky’s somewhat Bernankesque sense of humour in his wider analysis of The Great Recession; he seems to whistle and twiddle as he cites a ‘global savings glut’ to echo Keynes’ take on a problem of the 1920s, aware—surely—of the false parallel. After all, as Richard Duncan’s 2005 book The Dollar Crisis points out, America’s supply of greenbacks is no longer constrained by gold. And the bulging reserves of export-crazed countries do not immobilise money in the Keynesian sense (it’s lent right back to the US), nor do they enforce an orgy of reckless retail lending (enable, yes). America’s twin deficits reflect international perfidy no more than the stumble of a drunk suggests social conspiracy.

Skidelsky’s take on the issue (page 176 onwards) leaves one in no doubt that uncertainty deserves the attention of a book as well-focused as this. The Supply Shock Caveat, though, awaits addressal. If bless the exercise a dead economist must, one could begin with Keynes’ quip about the ‘beauty contest’ that the capital market is. Arranged in an order much too arbitrary for comfort. And busy wreaking havoc.

economicsJohn Maynard Keynes