The End of Efficiency in Economics - Robert Skidelsky (The Telegraph)

  The End of Efficiency

Economists have been strangely blind to the need to trade off efficiency for longer-term sustainability, largely because their equilibrium models regard the future as simply an extension of the present. But there is no reason to believe that what is efficient today will be efficient tomorrow and always.

Robert Skidelsky

The Telegraph, Londres – 18.12.2020

 

 Economics is the study of economizing, or using the least amount of time and effort to produce the greatest amount of satisfaction. The more we can economize on the use of scarce resources, the more “efficient” we are said to be in getting what we want. Efficiency is a prized goal because it literally cheapens the cost of living. Cheapness in obtaining the goods and services we want is thus the key to a better life.

Efficiency lies at the heart of trade theory. In the early nineteenth century, the economist David Ricardo argued that each country should concentrate on making what it could produce at the lowest relative cost. The late Nobel laureate economist Paul Samuelson described Ricardo’s theory of “comparative advantage” as the most beautiful in economics, equally applicable to the division of labor between people, businesses, and countries. It remains the underlying theoretical rationale for globalization.

Efficiency is also why economists have been fretting over labor productivity in advanced economies. In the United Kingdom, for example, workers produce, on average, no more output per hour today than they did in 2007, so there has been no gain in efficiency. This means that UK living standards have remained flat for 13 years – the longest period of stagnation since well into the Industrial Revolution. Economists have published hundreds of articles in learned journals trying to explain this “productivity puzzle.”

But the broader mood music has changed. Google’s Ngram Viewer, a tool that uses a database of millions of books and journals to chart the frequency with which words appear, indicates that use of “efficiency” and “productivity” has plummeted since 1982, whereas that of “resilience” and “sustainability” has spiked. We now talk more about the sustainability of economic life, meaning its resilience to shocks. Efficiency-focused economists are well behind the cultural curve.

Three factors seem to account for this shift. The first is growing concern that focusing only on the present cost of using resources will deplete the planetary resources available to continue the human species. Because what is cheap today may become impossibly expensive tomorrow, we need to invest in sustainable technologies that can yield a long-run return to humanity, rather than just short-run gains for businesses and consumers.

Second, COVID-19 has made us much more aware of the fragility of global supply chains. Ricardo’s beautiful theory threatens to spawn a nightmare if countries lose access to essential supplies because they have accepted the logic of procuring from the cheapest markets. During the pandemic, most people in the West were shocked by the extent of their reliance on China for essential medical supplies.

Lastly, it is more widely understood that the quest for efficiency at any cost, whether through globalization or automation, threatens the security and sustainability of employment. “The end of production is consumption,” Adam Smith proclaimed with impeccable logic. But sustainable consumption requires sustainable incomes, which come mainly from wages; and we are far from having a system that allows for consumption without wages. In fact, in the name of efficiency, we have allowed huge wealth and income inequality.

Economists are normally keen to speak of trade-offs. But they have been strangely blind to the need to trade off efficiency for sustainability – that is, to broaden their concept of efficiency to one of efficiency over time. This is largely because contemporary economists’ equilibrium models make no provision for time, and regard the future as simply an extension of the present. What is efficient today will be efficient tomorrow and always.

But, as John Maynard Keynes pointed out, the future is uncertain. There is no reason to believe that the conditions that today make free trade, global supply chains, automation, and poverty wages efficient will continue. As Keynes said in a notable response to the econometrician (and future Nobel laureate) Jan Tinbergen: “Is it assumed the future is a determinate function of past statistics? What place is left for expectations and the state of confidence relating to the future? What place is allowed for non-numerical factors, such as inventions, politics, labor troubles, wars, earthquakes, financial crises?” We could compile a similar list of contemporary risks.

It follows that economic policymakers need to pay much more attention to the “precautionary principle,” or the principle of “least risk of harm,” which aims to control risk rather than maximize benefits. The economist Vladimir Masch calls this approach “Risk-Constrained Optimization,” and argues that it “is needed under [the] highly dangerous, uncertain, and complex conditions of this century.” Using mathematical modeling, Masch has constructed a number of risk-constrained candidate strategies.

Such a prudential decision-making rule may lead us to uncomfortable lines of thought. For example, how sustainable is an uncontrolled increase in global population? We continue to put our faith in science and education to restrict population growth in time, but we don’t know how much time is available. There are surely grounds for the Malthusian concern that the increase in the number of people will exceed the resources available to support them, resulting in large-scale plagues, famines, floods, and wars – which traditionally have reduced overpopulation.

Likewise, a sustainable technology is surely one that does not make extreme demands on our power of adaptability, threatening widespread economic and social redundancy and the predictable political backlash. We currently view technological progress exclusively through the lens of efficiency, and allow its pace to be set by cost-cutting market competition. The prudential principle implies adapting technology to people, rather than the other way round.

Finally, how sustainable is a capitalist political economy that must allow its financial system to crash periodically on the grounds that it is “efficient” at managing risks?

So far, we have only started to scratch the surface of such questions. But as the language of efficiency and sustainability shifts, economic thought must catch up with the new disposition.  (P.S.)

 

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

Teoria Geral de Keynes faz 80 anos - Robert Skidelsky (e minha avaliacao: PRA)

Skidelsky é o biógrafo de Keynes e autor de muitas outras obras nessa área, inclusive de um dos livros que eu reputo a melhor explicação sobre o fracasso do socialismo no século: The Road From Serfdom, uma evidente alusão ao The Road to Serfdom de Hayek.
Não concordo com ele, por uma razão muito simples: Keynes não fez uma "teoria geral", e sim uma teoria particular ao momento de crise vivido pelas economias de mercado devido à excessiva intervenção dos governos na economia, inclusive e principalmente no que se refere à criação de inflação e de desemprego, pela imposição do monopólio sobre as moedas e de muitas regras afetando os mercados laborais (políticos sempre querem fazer bondades com os recursos alheios).
Não partilho da ideia de que mercados produzem desequilíbrios e que eles não são capazes de corrigir a si próprios. Mercados SEMPRE se corrigem a si próprios, mesmo em detrimento dos agentes que interviram com pouca informação, com propósitos especulativos, ou "corretivos", como pretendem os governos. Os mercados simplesmente refletem o comportamento de pessoas, e as bolhas são SEMPRE corrigidas por uma destruição de riqueza artificial, ainda que alguns venham a perder ativos nesse processo.
A pretensão de pretender corrigir "desequilíbrios", ou "falhas de mercado" é justamente o fator que impede os mercados de se autocorrigirem.
O keynesianismo é uma pretensão fatal, no sentido hayekiano da palavra, embora combine com a arrogância dos "engenheiros sociais", que estão sempre querendo construir um "mundo melhor", como aprendizes de feiticeiro. Costuma dar errado.
Em qualquer hipótese, cabe ler Skidelsky.
Paulo Roberto de Almeida

Keynes’s General Theory At 80

by Robert Skidelsky on 26 February 2016 @RSkidelsky

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Project Syndicate

Robert Skidelsky lecturing on Keynes (photo: Screenshot YouTube)

In 1935, John Maynard Keynes wrote to George Bernard Shaw: “I believe myself to be writing a book on economic theory which will largely revolutionize – not, I suppose, at once but in the course of the next ten years – the way the world thinks about its economic problems.” And, indeed, Keynes’s magnum opus, The General Theory of Employment, Interest and Money, published in February 1936, transformed economics and economic policymaking. Eighty years later, does Keynes’s theory still hold up?

Two elements of Keynes’s legacy seem secure. First, Keynes invented macroeconomics – the theory of output as a whole. He called his theory “general” to distinguish it from the pre-Keynesian theory, which assumed a unique level of output – full employment.

In showing how economics could remain stuck in an “underemployment” equilibrium, Keynes challenged the central idea of the orthodox economics of his day: that markets for all commodities, including labor, are simultaneously cleared by prices. And his challenge implied a new dimension to policymaking: Governments may need to run deficits to maintain full employment.

The aggregate equations that underpin Keynes’s “general theory” still populate economics textbooks and shape macroeconomic policy. Even those who insist that market economies gravitate toward full employment are forced to argue their case within the framework that Keynes created. Central bankers adjust interest rates to secure a balance between total demand and supply, because, thanks to Keynes, it is known that equilibrium might not occur automatically.

Keynes’s second major legacy is the notion that governments can and should prevent depressions. Widespread acceptance of this view can be seen in the difference between the strong policy response to the collapse of 2008-2009 and the passive reaction to the Great Depression of 1929-1932. As the Nobel laureate Robert Lucas, an opponent of Keynes, admitted in 2008: “I guess everyone is a Keynesian in a foxhole.”

Having said this, Keynes’s theory of “underemployment” equilibrium is no longer accepted by most economists and policymakers. The global financial crisis of 2008 bears this out. The collapse discredited the more extreme version of the optimally self-adjusting economy; but it did not restore the prestige of the Keynesian approach.

To be sure, Keynesian measures halted the global economy’s downward slide. But they also saddled governments with large deficits, which soon came to be viewed as an obstacle to recovery – the opposite of what Keynes taught. With unemployment still high, governments returned to pre-Keynesian orthodoxy, cutting spending to reduce their deficits – and undercutting economic recovery in the process.

There are three main reasons for this regression. First, the belief in the labor-market-clearing power of prices in a capitalist economy was never wholly overturned. So most economists came to view persistent unemployment as an extraordinary circumstance that arises only when things go terribly wrong, certainly not the normal state of market economies. The rejection of Keynes’ notion of radical uncertainty lay at the heart of this reversion to pre-Keynesian thinking.

Second, post-war Keynesian “demand-management” policies, credited with having produced the long post-1945 boom, ran into inflationary trouble at the end of the 1960s. Alert to a worsening tradeoff between inflation and unemployment, Keynesian policymakers tried to sustain the boom through incomes policy – controlling wage costs by concluding national agreements with trade unions.

Income policy was tried in many countries from the 1960s to the end of the 1970s. At best, there were temporary successes, but the policies always broke down. Milton Friedman provided a reason that jibed with growing disenchantment with wage and price controls, and that reasserted the pre-Keynesian view of how market economies work. Inflation, Friedman said, resulted from attempts by Keynesian governments to force down unemployment below its “natural” rate. The key to regaining stable prices was to abandon the full-employment commitment, emasculate the trade unions, and deregulate the financial system.

And so the old orthodoxy was reborn. The full-employment target was replaced by an inflation target, and unemployment was left to find its “natural” rate, whatever that was. It was with this defective navigational equipment that politicians sailed full steam ahead into the icebergs of 2008.

The final reason for Keynesianism’s fall from grace was the rightward ideological shift that began with British Prime Minister Margaret Thatcher and US President Ronald Reagan. The shift was due less to rejection of Keynesian policy than to hostility toward the enlarged state that emerged after World War II. Keynesian fiscal policy was caught in the crossfire, with many on the right condemning it as a manifestation of “excessive” government intervention in the economy.

Two final reflections suggest a renewed, if more modest, role for Keynesian economics. An even bigger shock to the pre-2008 orthodoxy than the collapse itself was the revelation of the corrupt power of the financial system and the extent to which post-crash governments had allowed their policies to be scripted by the bankers. To control financial markets in the interests of full employment and social justice lies squarely in the Keynesian tradition.

Second, for new generations of students, Keynes’s relevance may lie less in his specific remedies for unemployment than in his criticism of his profession for modeling on the basis of unreal assumptions. Students of economics eager to escape from the skeletal world of optimizing agents into one of fully-rounded humans, set in their histories, cultures, and institutions will find Keynes’s economics inherently sympathetic. That is why I expect Keynes to be a living presence 20 years from now, on the centenary of the General Theory, and well beyond.

© Project Syndicate

Robert Skidelsky e o retorno de Oswald Spengler sobre o declinio do Ocidente

Sociólogos em geral, e Skidelsky pode ser considerado um, amam essas analogias históricas e esse retorno de interpretações passadas. Independentemente das falsas analogias históricas, sempre se aprende alguma coisa com gente inteligente.
Paulo Roberto de Almeida

The Decline Of The West Revisited

by Robert Skidelsky on Project Syndicate, 17 November 2015 @RSkidelsky

Robert Skidelsky

The terrorist slaughter in Paris has once again brought into sharp relief the storm clouds gathering over the twenty-first century, dimming the bright promise for Europe and the West that the fall of communism opened up. Given dangers that seemingly grow by the day, it is worth pondering what we may be in for.

Though prophecy is delusive, an agreed point of departure should be falling expectations. As Ipsos MORI’s Social Research Institute reports: “The assumption of an automatically better future for the next generation is gone in much of the West.”

In 1918, Oswald Spengler published The Decline of the West. Today the word “decline” is taboo. Our politicians shun it in favor of “challenges,” while our economists talk of “secular stagnation.” The language changes, but the belief that Western civilization is living on borrowed time (and money) is the same.

Why should this be? Conventional wisdom regards it simply as a reaction to stagnant living standards. But a more compelling reason, which has seeped into the public’s understanding, is the West’s failure, following the fall of the Soviet Union, to establish a secure international environment for the perpetuation of its values and way of life.

The most urgent example of this failure is the eruption of Islamist terrorism. On its own, terrorism is hardly an existential threat. What is catastrophic is the collapse of state structures in many of the countries from which the terrorists come.

The Islamic world contains 1.6 billion people, or 23% of the world’s population. A hundred years ago it was one of the world’s most peaceful regions; today it is the most violent. This is not the “peripheral” trouble that Francis Fukuyama envisioned in his 1989 manifesto “The End of History.” Through the massive influx of refugees, the disorder in the Middle East strikes at the heart of Europe.

This movement of peoples has little to do with the “clash of civilizations” foreseen by Samuel Huntington. The more mundane truth is that there have never been any stable successors to the defunct Ottoman, British, and French empires that used to keep the peace in the Islamic world. This is largely, though not entirely, the fault of the European colonialists who, in the death throes of their own empires, created artificial states ripening for dissolution.

Their American successors have hardly done better. I recently watched the film “Charlie Wilson’s War,” which relates how the United States came to arm the Mujahideen fighting the Soviets in Afghanistan. At the end of the film, as America’s erstwhile clients turn into the Taliban, Wilson, the American politician who got them the money, is quoted as saying “We won a great victory, but fouled up the end game.”

This “fouling up” is a continuous thread running through American military interventions since the Vietnam War. The US deploys overwhelming firepower, either directly or by arming opposition groups, shatters local governmental structures, and then pulls out, leaving the country in shambles.

It is unlikely that US policymaking reflects the grip of some ideal view of the world, in which getting rid of dictators is the same thing as creating democracies. Rather, the belief in ideal outcomes is a necessary myth to cover an unwillingness to use force persistently and intelligently enough to achieve a desired result.

However much military hardware a superpower owns, decay of the will to use it is the same thing as a decay of effective power. After a time, it ceases to overawe.

That’s why Robert Kagan’s 2003 neo-conservative proposition, “Americans are from Mars, Europeans from Venus,” offered such a misleading guide. True enough, the European Union has gone farther down the pacifist road than the US. It is the weak nerve center of a flabby semi-state, with almost defenseless frontiers, where humanitarian rhetoric masks spinelessness. But America’s sporadic, erratic, and largely ineffective deployment of power is hardly of Martian quality.

The decline of the West is juxtaposed with the rise of the East, notably China. (It is hard to tell whether Russia is rising or falling; either way, it is disturbing.) Fitting a rising power into a decaying international system has rarely occurred peacefully. Perhaps superior Western and Chinese statesmanship will avert a major war; but this, in historical terms, would be a bonus.

The increasing fragility of the international political order is diminishing the global economy’s prospects. This is the slowest recovery from a major slump on record. The reasons for this are complex, but part of the explanation must be the weakness of the rebound in international trade. In the past, trade expansion has been the world’s main growth engine. But it now lags behind the recovery of output (which is itself modest), because the kind of global political order hospitable to globalization is disappearing.

One symptom of this has been the failure after 14 years to conclude the Doha Round of trade negotiations. Trade and monetary agreements are still reached, but they increasingly take the form of regional and bilateral deals, rather than multilateral arrangements, thereby serving broader geopolitical goals. The US-led Trans-Pacific Partnership, for example, is directed against China; and China’s New Silk Road initiative is a reaction to its exclusion from the 12-country TPP.

Perhaps these regional bargains will prove to be a step toward wider free trade. But I doubt it. A world divided into political blocs will become a world of trade blocs, sustained by protectionism and currency manipulation.

And yet, even as trade relations become increasingly politicized, our leaders continue to urge us to gear up to meet the “challenges of globalization,” and few question the benefits of cost-cutting through automation. In both cases, politicians are trying to force adaptation on reluctant populations who crave security. This strategy is not only desperate; it is also delusive, for it seems obvious that, if the planet is to remain habitable, competition in economic growth must give way to competition in quality of life.

In short, we are far from having developed a reliable set of precepts and policies to guide us toward a safer future. Small wonder, then, that Western populations look ahead with foreboding.

© Project Syndicate

Limites ao crescimento: uma tarefa impossivel, e inutil... - Livro Skidelsky

Ainda não li o livro dos Skidelsky (mas conheço vários outros do pai, inclusive a biografia de Keynes e seu excelente The Road from Serfdom, que recomendo), mas vou buscá-lo na próxima vez que entrar numa Barnes&Noble, um dos meus exercícios habituais, sempre que tenho tempo.
Mas, a julgar pela resenha do senador, o livro é falho em seus argumentos principais, ou então a resenha é mal construída, mal argumentada, e simplesmente impossível de ser realizada na prática.
Existe uma tendência inerente ao ser humano que é a de consumir, sempre mais, sempre mais sofisticado. Não existe nada de mais necessário, na vida dos seres humanos, do que o supérfluo.
O supérfluo é o responsável por todas as inovações ocorridas na história humana, desde a revolução agrícola, quando a humanidade ultrapassou os limites da subsistência para patamares de consumo mais estáveis do que a simples caça e coleta diárias.
Existe uma outra tendências inata aos homens, e às sociedades mais complexas -- ou seja, as baseadas na divisão social do trabalho -- que é a de ampliar continuamente a capacidade produtiva, visando justamente a ampliação do consumo. Sem isso não haveria criação de riqueza, não haveria progresso, não haveria melhoria das condições de vida.
É simplesmente impossível acontecer o que o senador diz -- e o que, talvez, os economistas preconizam, mas eu tenho dúvidas de que seja assim tão simples, ou simplista -- e nem preciso alinhar outros argumentos para explicar por que: não acontecerá, pronto, e os homens, as sociedades vão continuar consumindo, produzindo, criando riqueza, provocando desperdícios, lixo, poluição e encontrando solução para todos os problemas, os bons, e os maus.
O senador está errado: ou ele é ingênuo, ou ele não é economista, como diz ser. Nos dois casos, a conversa em torno das limitações de consumo é simplesmente inócua, ou inútil.
Em todo caso, vou conferir o livro, e depois farei meus comentários.
Paulo Roberto de Almeida

Quanto é o bastante: dinheiro e a vida boa'
por Cristovam Buarque
O Globo, 11/02/2013

'Quanto é o bastante: dinheiro e a vida boa' é um livro de Robert Skidelsky e Edward Skidelsky. Robert Skidelsky é o mais conhecido biógrafo de John Maynard Keynes. Ele nada tem de economista verde, nem de pessimista sobre o futuro do desenvolvimento. Mas, ele e seu filho Edward escreveram um belo livro sobre a ideia de um limite ao crescimento, não apenas ecológico, mas também moral e existencial.

A continuação do crescimento econômico é impossível e é desnecessário. As pessoas não vão conseguir consumir mais no mundo inteiro, e não precisam consumir mais para serem felizes.

Obviamente há um mínimo necessário do qual cerca de quatro bilhões de seres humanos estão excluídos. Porém há excedente no consumo de outros três bilhões. Isso impossibilita o mesmo padrão de consumo das classes médias e ricas do mundo para todos, não importa em que país a pessoa viva.

Apesar de que há uma forte resistência a esta constatação óbvia, fisicamente lógica e convincente moralmente, ela está cada vez mais aceita, menos na elite pensante brasileira, especialmente naqueles que são de esquerda.

Porque a direita, sem moral, mas, com lógica, não defende estender o consumo elevado para todos. A esquerda, por ilusão ou oportunismo, vende a ideia de que todos poderão ter um ou dois ou três automóveis. Oportunismo e egoísmo, porque não quer dividir o que tem, nem negar aos outros, e termina prometendo o impossível.

Recentemente, no debate relativo à redução nas tarifas de luz, um conhecido ator disse que um crítico ao incentivo à ampliação do consumo de luz, não queria que os pobres tivessem ar condicionado. Mas ele não aceitaria, diante da óbvia crise energética no futuro e do desperdício de hoje, que alternassem quem tem com quem não tem ar condicionado. Ele não quer ficar sem o dele durante um ano para que os pobres tenham. Então promete a mentira de que todos terão.

Também já está claro que todos terem automóveis privados será como se ninguém tivesse, todos ficariam paralisados em monumentais engarrafamentos, mas os que oferecem o impossível não aceitam uma regra de rodízio para que alguns tenham carro um ano e outros no ano seguinte.

Mas a crítica aos limites ao crescimento não se limita aos aspectos ecológicos, ela tem uma dimensão moral. A felicidade é um conceito sério demais para vincularmos como sinônimo de mais consumo. Não foram os economistas que começaram a falar isso, foram filósofos e os jovens hippies.

A humanidade precisa substituir seu padrão de bem estar, conforto e felicidade por algo mais substancioso moral e existencialmente do que a renda e o consumo.

Este livro do Skildelsky é um formidável texto para aqueles que resistem a isso, seja porque optam indecentemente para que apenas alguns consumam muito e outros consumam quase nada e para os que prometem a ilusão de que todos terão tudo.

Ele não fica apenas na divagação hippie, vai ao grande cientista do crescimento no século XX, o economista John Maynard Keynes, e tira dele até mesmo um número de quanto seria o limite máximo que cada pessoa precisa para ter a vida que deseja, sem a ilusão de uma abundância elusiva, na qual nunca chegaremos.

Cristovam Buarque é professor da UnB e senador pelo PDT-DF
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How Much is Enough?

Money and the Good Life

Robert Skidelsky; Edward Skidelsky

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A provocative and timely call for a moral approach to economics, drawing on philosophers, political theorists, writers, and economists from Aristotle to Marx to Keynes.

What constitutes the good life? What is the true value of money? Why do we work such long hours merely to acquire greater wealth? These are some of the questions that many asked themselves when the financial system crashed in 2008. This book tackles such questions head-on.
   The authors begin with the great economist John Maynard Keynes. In 1930 Keynes predicted that, within a century, per capita income would steadily rise, people’s basic needs would be met, and no one would have to work more than fifteen hours a week. Clearly, he was wrong: though income has increased as he envisioned, our wants have seemingly gone unsatisfied, and we continue to work long hours.
   The Skidelskys explain why Keynes was mistaken. Then, arguing from the premise that economics is a moral science, they trace the concept of the good life from Aristotle to the present and show how our lives over the last half century have strayed from that ideal. Finally, they issue a call to think anew about what really matters in our lives and how to attain it.
   How Much Is Enough? is that rarity, a work of deep intelligence and ethical commitment accessible to all readers. It will be lauded, debated, cited, and criticized. It will not be ignored.

Other Press; June 2012
ISBN 9781590515082
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Keynes, the Return of the Master - Robert Skidelsky

Estou lendo, na verdade relendo, este livro de Robert Skidelsky, conhecido biógrafo de Keynes (em 3 volumes, depois resumido em um, para os preguiçosos), autor de diversos outros livros -- entre os quais eu aprecio particularmente The Road from Serfdom, de 1994, uma história econômica do século 20, parafraseando o título, e a história de Hayek, "into serfdom", publicado em 1944 -- mas que trata, desta vez, dos ensinamentos do velho mestre para a crise que ainda está se desenvolvendo.
Abaixo, uma resenha do conhecido economista Mankiw, da Harvard University, publicada logo depois que o livro foi lançado.

BOOKSHELF
Back In Demand: A great thinker has his admirers and detractors. Do his ideas logically cohere?
By N. GREGORY MANKIW
The Wall Street Journal, September 21, 2009 - page A17

Keynes: The Return of the Master
By Robert Skidelsky
New York: PublicAffairs, 2009, 221 pages, $25.95

John Maynard Keynes. The name, by itself, is something of a Rorschach test for economists. More than half a century after the death of this famed Cambridge University professor, he remains among the most controversial figures in the field. The recent economic crisis has raised Keynes's profile yet again and further stoked the debate over his contributions.

Most macroeconomists—that is, those who study the ups and downs of the overall economy—fall into one of two broad camps: Keynes admirers or Keynes detractors. When these groups cross paths, the result is the ivory-tower equivalent of a spitball fight.

To admirers, Keynes was nothing short of the savior of the capitalist system. His "General Theory of Employment, Interest and Money" (1936) proposed a diagnosis and remedy for the calamity known as the Great Depression. According to Keynes, economic downturns are not a fundamental indictment of the market economy. Rather, recessions and depressions arise from insufficient aggregate demand. A smart government can remedy the problem with its monetary and fiscal policy—say, by printing up some money and spending it. Once the right policies are put in place, the thinking goes, the world is safe again for free markets.

To detractors, Keynes was an economist whose reach exceeded his grasp: He tried to replace classic economic principles with new ones of his own, but what he offered was vague and incomplete. Keynes's many followers have tried to give his theory analytic rigor, but with only limited success. Despite these intellectual deficiencies, the detractors say, Keynesians recklessly push their ideas in the political arena, where they often lead to high inflation and excessive budget deficits. The fiscal policy of the Obama administration is a case in point. When the White House pushed for a massive increase in infrastructure spending to create jobs, it was taking a page from the Keynes playbook.

There is no doubt where Robert Skidelsky stands. A professor at the University of Warwick, he is the author of a magisterial three-volume biography of Keynes. After his years of research, he is a true believer. In "Keynes: The Return of the Master," Mr. Skidelsky makes the case for Keynes—not only for his place in the history of economic thought but also for his relevance today. To understand the global economic crisis of the past year, he says, we need more unadulterated Keynes.

In the Keynesian view as channeled by Mr. Skidelsky, the credit crunch happened because policy makers "succumbed to something called the efficient financial market theory: the view that financial markets could not consistently misprice assets and therefore needed little regulation." We must now aim at "treating symptoms." Thus: "Global aggregate demand is collapsing; extra spending is needed to revive it." In the long term, he says, we need "an expanded public sector, and a more modest role for economics as tutor of governments."

In his preface, Mr. Skidelsky says that he is a historian, not an economist. The book bears out the claim, in both its strengths and weaknesses. Mr. Skidelsky is most engaging when he draws on his biographical work. Keynes, we are reminded, had a fascinating life. He was a widely read intellectual who wrote accessibly for the general public. He advised world leaders on the crucial issues of the day and socialized with the artists and writers of the Bloomsbury group. But most of "Keynes" is devoted to ideas, not history, and here Mr. Skidelsky is not playing his strong suit. To economists his discussion of macroeconomic theory will seem pedestrian and imprecise. To laymen it will seem abstract and hard to follow.

As an ardent fan, Mr. Skidelsky fails to give Keynes's intellectual opponents their due. In academic circles, the most influential macroeconomist of the last quarter of the 20th century was Robert Lucas, of the University of Chicago, who won the Nobel Prize in 1995. His great contribution to the discipline was to analyze how government policies influence the economy in part through their effect on people's expectations—a lesson that Keynes would likely have appreciated but that early followers of Keynes often ignored.

Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories—I have conducted such research myself—tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

Mr. Mankiw, a professor of economics at Harvard University, is the author of the textbooks "Macroeconomics" and "Principles of Economics."