Animal Spirits : How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism Hardback
The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today.
From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide.
In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity.
Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery.
Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.
Animal Spirits offers a road map for reversing the financial misfortunes besetting us today.
Read it and learn how leaders can channel animal spirits--the powerful forces of human psychology that are afoot in the world economy today.
- Format: Hardback
- Pages: 248 pages, Illustrations
- Publisher: Princeton University Press
- Publication Date: 29/01/2009
- Category: Economics
- ISBN: 9780691142333
Showing 1 - 3 of 3 reviews.
Review by DavidGoldsteen
I've been working in the financial industry for more than a dozen years, and over that time I've grown less confident that we really understand what drives our economy. The myth of the rational actor is disturbing. Of course, it's possible that in aggregate, the actions of myriad nonrational actors may appear rational, but the fact that it's possible doesn't make it necessary. It seems to me we've constructed a house of cards on a flimsy rationalization.With that in mind, I was excited to read "Animal Spirits" by Akerlof and Shiller. I'd recently read Shiller on the housing bust, and though I think he is too optimistic about using financial markets to correct for price bubbles, I think he has a good perspective. "Animal Spirits" is more a manifesto than a fully thought-out economic model. It points the way to a more mature way of modeling behavior, taking into account feedback loops due to confidence, etc. It's only half a model at this point, though: it provides a reasonable framework for interpreting events in the past, but I'm not sure it's ready to make predictions about the future. This is the true test of a model.The prose is good, and the economics are clear. Akerlof and Shiller are clearly writing for the average reader, who'd rather not see an equation in the middle of a casual read. They have an annoying tendency to refer to themselves individually in parenthesis, but otherwise, a nice prose style.
Review by Nodosaurus
This is a book on behavioral economics. The animal spirits is derived from Latin, and refers more to states of mind. Economics is driven more by perceptions and ideas about economics, sometimes irrational. The Keynesian adherence to simple profit-motivated activities can be misleading and inaccurate. George Akerlof argues in support of behavioral economics over the more popular Keynesian economic theory. He pulls examples over the past 20 years or so to establish his argument over behavioral economic's superiority. He posits that people work from stories about economic behavior. These stories are patters of behavior that they expect others to follow. Through the book he uses these stories to explain unemployment, recessions, other behaviors. The book makes good use of examples and the author does take the time to explain his theory and how it differs from Keynesian economics. Its weakness is in the approach. Some of the "real people" examples seem odd, for instance, the real person who who is young, and fresh out of school is a female professor at Harvard. This doesn't feel like a real person and weakens the value of his example. Many of his examples, especially those from history feel either contrived or cherry-picked. In my opinion, the book would have been much stronger if he had pointed out criticisms or alternate theories and addressed them in comparison. He does provide a lot of notes, some with references, which does give it some feel of a scientific paper. I don't feel there is enough in the book to convince me of the strength of his theory of behavioral economics, but it does offer some real good food for thought.
Review by PaolaM
First of all, the good bits - this book was originally written in 2008, and the 2010 paperback edition preface states:<br/><blockquote>As we write this in October 2009, we are afraid that the optimism, even if still a bit guarded, reflects an Indian summer. We do not know what lies ahead. We go along with those who consider it a good sign, at the time of this writing, that there are “green shoots” of recovery, and that forecasters are talking about growth of GDP sometime in the near future. It would be far worse if people were gloomier.<br/>But the Animal Spirits view of confidence, both overconfidence and underconfidence, makes us wary. It tells us that we do not know what lies ahead. And now should be the time when we are making plans for what happens if there are future shocks: if there are future Lehman Brothers, future massive declines in the stock market, yet more unanticipated bankruptcies. In the United States, for example, we fear that neither the Congress nor the Obama administration is now readying the public for the possible necessity of further stimulus packages, or for further dramatic action by the Federal Reserve to support credit markets if that should become necessary.</blockquote><br/><br/>However, the problem I have with this book is that it tends to sell a viewpoint of how the economy works without presenting enough of the alternative viewpoints (though, as the authors state, they perceive their -neokeynesian - view as a minority view at present).<br/><br/>In a nutshell, and very coarsely, the main view is: people are boundedly rationaly, this is something that the mainstream economic view does not want to know about, but really they should, as "animal spirits" do matter a lot - and they proceed to show how this point of view sheds light on a number of economic issues, from why people cannot find work to why financial markets are volatile.<br/><br/>In the end, however, I don't think they manage to reach their objective, as I think most readers would come away with a picture whereby (macro)economists belong to either of two tribes, one peddling unfettered markets, while the other calls for more geovernment intervention to "save" individuals from the effects of their cognitive shortcomings (saving more for retirement, not fallig for snake oil and the like). This is compounded by (macro)economists being unable to agree on the basics (e.g. is there or is there not a trade-off between inflation and unemployment? Does a natural rate of unemployment exists), so surely the reader is bound to be more baffled after reading this book than before starting it.