Keynes, según Skidelsky

De Robert Skidelsky, vía LK, unos párrafos de un texto muy sintético sobre la visión de Keynes sobre varios puntos que le diferencian de la Economía Clásica. El texto es mucho más amplio; yo me centro exclusivamente sobre el tema de la incertidumbre, su efecto sobre la inversión, y su influencia crucial en el nivel de producción suficiente para que haya pleno empleo, y el papel del dinero, que impide que se cumpla la regla de oro clásica de que el tipo de interés iguala el ahorro a la inversión. He seleccionado los menos párrafos posibles, con ello espero no haber traicionado a Skidelsky, pero siempre pueden ir al original citado bajo su nombre. Mi objetivo es de divulgación y precisión de ideas que en este blog salen a relucir cada dos por tres. Les invito a que se fijen la aplicación de las ideas a la crisis de 2008.

Keynes’ view that uncertainty about the future is the root cause of financial crisis may be contrasted with today's conventional view that the recent banking collapse was caused by the ‘mispricing of risk’. Behind this lies the notion that risks can be correctly priced, but that markets were impeded from discovering these correct prices by information or incentive failures. The key to the prevention of further crises is therefore better ‘risk management’ by the banks and by the regulators: more transparency, better risk models and above all better incentives to evaluate correctly the risks being run. There is no questioning of the view that investments can, in principle, be correctly priced and that expectations will, on average, be fulfilled. The argument seems to be between those who say risks are always correctly priced on average—the efficient market theorists—and those who concede that exogenous shocks, imperfect information and/or the wrong incentives can cause market prices to deviate temporarily from the correct prices given by ‘fundamentals’.

By contrast, Keynes made a key distinction between risk and uncertainty. Risk is when probabilities can be known (measured); uncertainty exists when they cannot be known (or measured), i.e. when the future is unknowable. His original insight was that the classical theory of the self-regulating market rested on the epistemological claim that market participants have perfect information about future events. Grant this and the full employment assumption follows, deny it and it collapses. Keynes’ economy, on the other hand, is one in which our knowledge of the future is ‘usually very slight and often negligible’ and expectations are frequently subject to disappointment (Keynes, 1973A, pp. 194, 293–4). This renders investment ‘a peculiarly unsuitable subject for the methods of the classical economic theory’ (Keynes, 1973C, p. 113). Macro models that assume that we have calculable probabilities are irrelevant to the actual working of economies.

... The future cannot be predicted because it is ‘open’. It is ‘open’, in large part, because it depends on our intentions and beliefs, and on the organic nature of human life. In talking about irreduceable uncertainty Keynes does not just have in mind ignorance of the relevant probabilities, but genuine ontological indeterminacy: some probabilities are not just unknown, but non-existent. [Footnote 2] This view implies a large restriction on the domain of econometrics. Basically Keynes believed that it was relevant only to those fields dealing with risk rather than uncertainty. This, therefore, excluded investment markets.

... Induction appears in Keynes's treatment as a convention, the convention being that ‘the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto’ (Keynes, 1973C, p. 114). A second convention that Keynes emphasises is the testimony of the crowd. ‘Knowing that our own individual judgment is worthless we fall back on the judgment of the majority or the average’ (Keynes, 1973C, p.114). We follow the crowd, which itself relies on the opinion of experts, who are themselves trying to guess ‘what average opinion expects average opinion to be’ (Keynes, 1973A, p. 150)...

However, any view of the future based on conventions is liable to ‘sudden and violent changes’ when the news changes, even transiently, since there is no basis of real knowledge to hold it steady. Suddenly everyone starts revising their bets: the practice of calmness and immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning take charge of human conduct. The forces of disillusion may suddenly impose a new conventional basis of valuation. All these pretty, polite techniques, made for a well panelled board room and a nicely regulated market, are liable to collapse. (Keynes, 1973C, pp. 114–15)

This is as good a theoretical explanation as I know of for the meltdown in the autumn of 2008. It also illustrates, with unerring precision, the contradictory character of financial innovation. By making investment more ‘liquid’, the stock market reduces the proportion of their resources that people will want to hold in cash. Other things being equal, it serves to increase the volume of real investment (accumulation of capital). But by the same token it enlarges the scope for speculation and thus makes economic life more volatile. This has been exactly the effect of ‘securitisation’ in the last few years.

Keynes accepted that the volume of investment depends on the rate of interest, but denied that the rate of interest was determined in the market for saving and investment. Rather it is the price for parting with money. This is his liquidity preference theory of the rate of interest. Money plays a key part in Keynes's narrative of investment breakdown. Holding money is an alternative to buying investments. Keynes was the first modern economist who clearly identified the role of money as a ‘store of value’. What he called ‘liquidity preference’ rises when the ‘convention’ supporting investment collapses. A rise in liquidity preference can retard the fall in the rate of interest necessary to bring about a recovery of investment in the face of a fall in expected profitability. Indeed, a fall in the expected profitability of investment and a flight into money are two sides of the same coin. This is essentially what happened in 2007–8. Liquidity suddenly dried up as banks enlarged their cash balances and stopped lending. Indebtedness played a larger part in the freeze-up than it did during the time of the Great Depression, but the essential motive for the flight into money—loss of confidence in the future—was the same. Any rise in the demand for money to hold tends to raise the cost of borrowing at the precise moment when the fall in the MEC requires that it should be lower. Keynes's liquidity preference theory of the rate of interest is his main explanation for why a market economy lacks a self-correcting mechanism.

By 1936, he had come to believe that ‘if…we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips between cup and lip’ (Keynes, 1973A, p. 173). He now saw an increase in the quantity of money as a consequence, not a cause, of a recovery of aggregate demand: the causal relationship ran from spending to money supply, not from money supply to spending. Nevertheless, he conceded, in 1937, that an investment decision may involve ‘a temporary demand for money…before the corresponding saving has taken place’. Thus, though extra investment (private or public) could not be limited by a ‘shortage of saving’ it could exceed the supply of financial facilities ‘if the banking system is unwilling to increase the supply of money and the supply from existing holders [of inactive balances] is inelastic’. In this situation the central bank could always create the ‘finance’ for additional public investment by printing more money. As the investment takes place ‘the appropriate level of incomes will be generated out of which there will necessarily remain over an amount of saving exactly sufficient to take care of the new investment’ (Keynes, 1973C, pp. 207–10).