You lived in Keynes’s house for 20 years. Has he always loomed large in your life?
He started to loom large when I was working on my thesis, which became Politicians and the Slump. He seemed to have very good answers to the slump that were never adopted.
What has driven the current financial crisis?
Faith in risk-management models, and the belief that you could reduce all uncertainty to risk. In risk, you have numbers; in uncertainty, you don’t. The bankers believed you could work out the odds on anything, like a game of dice or roulette. The pervasiveness of uncertainty seems to be Keynes’s central point: those wedded to the efficient market don’t take sufficient account of it. It’s right at the root of his economics. He rejected probability as a statistical concept and thought of it instead as a logical concept. This was key. If you have probabilities without numbers, you open the barrier to uncertainty: you have knowledge, but it’s not precise.
Has the bailout shifted the problem from a banking crisis to a fiscal crisis?
I don’t think there is a fiscal crisis. I think it’s an invention.
Yes. Someone like George Osborne gets away with leaving out assumptions behind his arguments because he’s not confronted with them. He’s interviewed a lot, but people haven’t really nailed him. There hasn’t been enough debate about the stimulus and national debt.
Did you vote, before ennoblement?
I did from time to time. I tended to vote Labour.
Why hasn’t the crisis killed the “efficient markets” hypothesis?
It’s tenacious for two reasons. First, economists want their subject to be as much like the natural sciences as possible, so you can’t allow uncertainty into the system. Second, much of the new classical economics really supports those with power – the people who want the markets to be set free and who hate government intervention. Those two things are a deadly combination. When you trace back the relationship between banks and government, you always get to the same idea: that markets are efficient and governments are inefficient.
You’ve said we should be wary of scapegoating bankers. Are you uneasy with bailout outrage?
It’s morally explicable, and it’s important because it fuels the pressure for reform. But if you’re looking for the causes, it doesn’t really help. It was greed that allowed the disaster to be as large as it was. And the guilty ones were allowed to get away with it.
Self-interest became the touchstone of conduct and the sense of being part of a community had eroded – there was less of a religious sense.
Do you have a religious temperament?
I’ve come to appreciate the importance of a religious temperament more and more. I no longer see obstacles to believing in things that atheists and secularists find it impossible to believe in. I’m not sure the problem of rational belief is confined to religion. I find it increasingly difficult to believe scientific truths.
Are we all doomed?
In the long run, yes. I’m not sure our species has enough moral and intellectual resources to be permanent inhabitants of this planet.
Amartya Sen advises recalibrating GDP to take quality of life into account. Do you agree?
Certainly – they already have indexes of well-being. But no one takes them seriously because the numbers are arbitrary. GDP numbers seem harder, but they’re less certain than they used to be – how do you factor in financial services? I would be inclined, like Adair Turner, to assume that a large part of them is socially useless, and cut them down. Adair Turner has revealed himself as a rather effective critic of our financial system.
He has been very courageous, and said things that were very necessary. Reducing the weight of financial transaction on our system is now on the agenda. But the fear is that as the economy recovers all this will be swept away.
That’s a very pessimistic observation.
It’s an observation that fits the essentially placid British character. Maybe I see it that way because I don’t have English parentage.
Do you feel outside of Englishness?
I was educated in England, made my career in England, and couldn’t have entered a more English institution than the House of Lords. I think I see things from outside and inside.
Do you feel comfortable as an outsider?
I think so. I think it balances one’s need for acceptance with one’s commitment to truth.
Robert Skidelsky’s “Keynes: the Return of the Master” is published by Allen Lane (£20)