http://www.reuters.com/article/marketsNews/idUSN0622233120090916?pa...

NEW YORK, Sept 16 (Reuters) - John Maynard Keynes, best known for his blueprint for government spending after the Second World War, is getting a new lease on life as officials spend their way out of the financial crisis.

While this is well deserved, biographer Robert Skidelsky argues that economists are ignoring an even more important part of Keynes' thinking, at the peril of future crises.

Skidelsky, a professor at the University of Warwick in Britain who toiled 20 years on an award-winning three-volume biography of Keynes, says he provides "the right kind of theory" to explain the financial crisis.

In his latest book, "Keynes: the Return of the Master" (PublicAffairs, $25.95), Skidelsky argues that the centerpiece of the seminal economist's thinking -- the uncertainty of the future -- is also highly relevant.

For the past 20 years, the idea that markets constantly "clear" -- they account for risk efficiently -- has dominated economic thinking. Blinded by this belief, few economists take uncertainty seriously.

Yet, according to Skidelsky, the root cause of the current crisis lies in this failure of mainstream economic thinking.

In particular, Skidelsky takes aim at Robert Lucas, a Nobel prize winner in economics whose work in the 1970s on rational expectations helped push neo-Keynesian economics out of favor.

Events of the last two years could not have happened if Lucas' rational expectations theory, and subsequent theories on the business cycle and efficient markets, had been correct, Skidelsky said in an interview.

To work efficiently, markets must have perfect information about the future, he writes. "This is manifestly absurd."

Much of the work on Keynes has focused on his efforts to maximize employment. According to Skidelsky, it needs to shift to his ideas about the instability of financial markets.

"People didn't really investigate how stable the financial system was," Skidelsky said. "That wasn't thought to be part of Keynes."

Keynes has been misunderstood in many ways, according to Skidelsky. He was not a socialist, or a nationalist or even a regulator. He believed in stable prices and that governments should normally run surpluses. He also was neither an inflationist nor a tax-and-spend fanatic.

To be sure, Keynes advocated government spending to get people back to work and the economy growing, key concerns during the depths of Great Depression in the 1930s.

Yet there is more to Keynes than that, Skidelsky argues. He had moral views about the economy, which have been abandoned in the pursuit of wealth and the embrace of markets as arbitrator.

And his ideas on how to address the imbalance between savings and investment, and the role of a reserve currency, should be revisited.

Sixty years after his death, Keynes is an economist for the new world order, Skidelsky says. "The world does have need for his ideas, and people have almost forgotten him."