John Maynard Keynes

"Ah, yes. Well, Davidson is a bit of a lonely pioneer. His book on Keynes is a straight, honest, succinct statement of what Keynes was about and it has the great merit of putting uncertainty at the centre of Keynesian theory. This was something people ignored even when Keynes was at the height of his popularity. Why? Because people don’t like uncertainty. Mainstream economists think that people have correct expectations about the future. It’s mad really if you think about it. I mean, you can perhaps be certain about tomorrow but if you are thinking about investing in a new plant or a new process you have to think in years, you have to acknowledge that things can go wrong, people make mistakes. Uncertainty is very central to Keynes, but even when he was in the ascendant it was rather omitted. But Davidson held fast and has, I think, been vindicated. When an economy has a big shock people don’t redirect their spending; they stop spending. Ah, well, it’s very mathematical and the classical economists do their maths so that the equation comes out right. Most non-economists would see it as a lot of nonsense, but it goes back to the Newtonian view of economics, which is that a pendulum swings to the left and right but ends up back in the middle. It is basing economics on natural science, but in order to do that you have to assume that human beings are like robots, that they are just a collection of atoms. I don’t think that’s how you do economics and nor does Paul Davidson. When there is a shock or uncertainty we like to keep our money, not just under the bed, but we don’t like to spend it. Davidson was outside mainstream Keynesian economics but I follow his view in my books and I give him credit for focusing on the uncertain expectations."