Paul Krugman reviews Keynes: The Return of the Master by Robert Skidelsky in the Observer.  He writes:

…there’s an alternative interpretation of what Keynes was all about, one offered by Keynes himself in an article published in 1937, a year after The General Theory. Here, Keynes suggested that the core of his insight lay in the acknowledgement that there is uncertainty in the world – uncertainty that cannot be reduced to statistical probabilities, what the former US defence secretary Donald Rumsfeld called “unknown unknowns”. This irreducible uncertainty, he argued, lies behind panics and bouts of exuberance and primarily accounts for the instability of market economies.

In this book, Skidelsky puts himself in the camp of those who argue, in effect, that Keynes 1937, not Keynes 1936, is the man to listen to – that Keynesianism is, or should be, essentially about uncertainty and how it leads to economic instability. And from this he draws some radical conclusions.

Most strikingly, Skidelsky declares that the traditional division between microeconomics and macroeconomics, which is based on whether one focuses on individual markets or on the overall economy, is all wrong; macroeconomics should be defined as the field that studies those areas of economic life in which irreducible uncertainty, uncertainty that cannot be tamed with statistics, dominates. He goes so far as to call for a complete division of postgraduate studies: departments of macroeconomics should not even teach microeconomics, or vice versa, because macroeconomists must be protected “from the encroachment of the methods and habits of mind of microeconomics”.

How far should we be willing to follow Skidelsky in this? I think we must trust the biographer in his assessment of Keynes himself; Skidelsky argues persuasively that Keynes spent much of his life deeply focused upon, even obsessed with, the question of how one acts in the face of uncertainty, which is why Keynes 1937 comes closer to the essence of the great man’s own thinking.

That’s not the same thing, however, as saying that Keynes was right – even about his own contribution. Surely it’s possible to make the case for a less profound reconstruction of economics than Skidelsky advocates. I’d point out that behavioural economists, who drop the assumption of perfect rationality but don’t seem much concerned by the essential unknowability of the future, have done relatively well at making sense of this crisis; I’d also point out that current disputes over economic policy, above all about the usefulness of government spending to promote employment, seem to be primarily about Say’s Law – that is, Keynes 1936.