1This book is a collection of 10 articles by leading experts of Keynes’ s thought and 2 articles on economic policy issues in the Eurozone, prepared for a conference which took place at Roskilde University (Denmark) in May 2011. In the opening article, the editors provide a broad overview of the contributions. The goal of the book consists in revisiting Keynes’s thought in the light of the Global Financial Crisis and the ensuing Great Recession. In this review I will try to convey the general message of the book and touch upon the issues that sound most familiar and more intriguing to me.
2Some of the ideas discussed in the volume remind me of the debate of the 1970s on the interpretation of Keynes’ thought, especially in the (American) Post Keynesian camp. In that debate—featuring intellectual heavyweights such as Paul Davidson, Jan Kregel and many others—the nexus of time, intractable uncertainty, expectations and liquidity played a key role in the conceptualization of Keynes’ s framework. These themes are central in the articles by M. Hayes, M. Lainé, A. Carabelli, M. O. Madsen, J. Jespersen.
3The line of research pioneered by Hyman Minsky—which goes under the name of Financial Instability Hypothesis—provides a necessary complement to this interpretation of Keynes. This is the theme underlying the contributions by S. Voss and especially E. De Antoni (along essentially the same line, see also the article by N. Levy-Orlik). This is not surprising. The “financial” interpretation of Keynes’s thought—and especially Minsky’s ideas on the endogenous determination of financial crises—is particularly appealing in the light of the Global Financial Crisis. There are however additional elements—sometimes already touched upon in the previous literature—that surface in this book and deserve closer examination. Let me focus on three of them.
4In his contribution to the volume James Galbraith emphasizes the ideas of Galbraith père (i.e. John Kenneth Galbraith) on the violation of contract and law (fraud) as an outstanding feature of the macroeconomy mired in a deep crisis. Fraud—especially financial fraud—is indeed an emerging property, so to speak, of the macroeconomy in a financial crisis. There is a subliminal reference to this in Minsky’s categorization of financial behaviour. Ponzi financing, which is one of the three types of financing behavior considered by Minsky (together with hedge and speculative financing) is indeed reminiscent of the prototypical example of financial fraud, namely the Ponzi scheme. Minsky’s definition of a Ponzi financing unit—and agent who goes into additional debt to pay interest on outstanding debt—does not necessarily imply a fraud. The definition emphasizes the unsustainability of the agent’s financial position. The label Minsky uses however makes explicit reference to Charles Ponzi, the fraudulent financier. As Bernie Madoff has shown, there is nothing new under the sun. Interestingly, an analogous reference is recurring also in Dynamic Stochastic General Equilibrium models (No-Ponzi game condition).
5James Galbraith complains that the importance of the issue is generally underestimated and the issue itself under-researched. He also seems to imply that complicity and conflicts of interest are partly responsible for this worrisome form of neglect. Whatever the reasons, it rings true to me that the issue is more present in the media and sometimes in the policy debate than in academic research. Recent exceptions to this neglect that come to my mind are a couple of chapters of Stiglitz’ s book on the Roaring Nineties (chapter 5 on Creative Accounting and chapter 10 on Enron; see Stiglitz, 2004) and one chapter of the book by Akerlof and Shiller on Animal Spirit (chapter 3 on Corruption and bad faith; see Akerlof and Shiller, 2009).
6The second interesting theme is the relation of Keynes’s economics to Modernism and Post Modernism. Following the definition by Phelps (1990), D. Togati claims that Keynes’ s General Theory has High Modernist features (a label that is reminiscent of the Bloomsbury group): avant-garde views, linguistic and stylistic innovation, rejection of realism, preoccupation with form and techniques. On the other hand, according to Togati, the New Neoclassical Synthesis—i.e. the stream of literature which blends the Dynamic Stochastic General Equilibrium framework (originally proposed in the Real Business Cycle literature) with New Kenesian Economics—has Post-Modernist features (eclecticism, linguistic innovation, descriptive realism, forms as ends in themselves). Togati claims that only an upgrading, so to speak, of Keynes’s (high) modernist perspective to a neo-modern (and somehow post-modern) perspective may lead to a large adoption of Keynes’ s ideas in the profession. Togati’s taxonomy is controversial (one can raise objections to most of his claims) but this peculiar interpretation is intriguing.
7The third interesting theme is complexity. The complexity (in its broadest meaning) of the economy is the main source of intractable uncertainty, an issue well known to the American Post Keynesian interpretation of Keynes I have mentioned above. In the last couple of decades, however, complexity has gained a more specific profile in economics. The web of interactions (of one form or another) among heterogeneous agents (where heterogeneity is defined according to different criteria, such as financial fragility, information availability etc.) is under the spotlight in a relatively new strand of literature which goes under the name of Agent based Computational economics (ACE). Readers interested in this literature are invited to visit Leigh Tesfatsion’s website. This approach is indeed compatible with the ideas discussed above. Minsky’ s Financial Instability for instance is an emerging property of some of the models developed in this literature. In the book, A. Carabelli, summarizing thirty years of her research on Keynes, claims that he has pioneered a complexity approach to economics. Complexity, in her thinking, is mainly the source of uncertainty and therefore of the cognitive constraints on human behavior. ACE has gone a step further, incorporating these insights into computational models. This literature is still in its infancy but is growing fast and I am sure will provide important new insights in the near future.