The exact nature and effects of economic uncertainty are subjects which have played a central role in macroeconomic theory for several decades, especially in the work of Keynes and his followers. Uncertainty, as defined by Keynes, is thought by many to be capable of explaining all of the key events of the past five years, including the intractability of the recession in the developed economies. More unexpectedly, the concept has started to play a starring role in the US presidential campaign, though in a very different context from anything contemplated by Keynes.
When I first studied Keynesian macroeconomics in the early 1970s, Keynes’ thoughts on the nature of uncertainty, which appear most famously in Chapter 12 of the General Theory, were not thought central to his analysis of the Great Depression, or for his policy prescriptions. The writings of Paul Davidson changed that perspective in the 1980s, but the subject was still mostly viewed as a special topic for rather obscure debates among post-Keynesian theorists. None of this had mass appeal until the crash of 2008, and the work of Robert Skidelsky in 2009. Read more