Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism |  | Authors: George A. Akerlof, Robert J. Shiller
Publisher: Princeton University Press
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Rating:  55 reviews
Sales Rank: 1787
Media: Hardcover
Pages: 264
Number Of Items: 1
Shipping Weight (lbs): 1.2
Dimensions (in): 9.3 x 6 x 0.9
ISBN: 0691142335
Dewey Decimal Number: 330.122019
EAN: 9780691142333
ASIN: 0691142335
Publication Date: February 18, 2009
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Product Description
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.
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Showing reviews 1-5 of 55
 Fabulous November 19, 2009
Timothy S. Wade (Newark, CA USA)
4.5 Stars out of 5 Stars
Summary:
If you want to know why the economy works the way it does - this is the book for you. You are not the "rational man" that economists think you are, none of us are. And if you want to understand why they think that way, and how it screwed up our economy this book will help.
Details:
Akerlof and Shiller are great economic thinkers who systematically approach economics from the ground up, and focus on how our "animal spirits" affect the economy. It is very well-written, engaging and easy to read.
I particularly liked the section on the labour market and why wages are above the market level. They gave several reasons including:
- fairness with our colleagues;
- our employers want us to work hard;
- we only very rarely accept pay cuts even in times of serious deflation;
- and a lot more.
There is also a more serious undercurrent in this book, about how the "rational" economists ignore how we really feel. Akerlof and Shiller explain why they took these shortcuts and the terrible consequences of that line of thinking.
The Takeaway:
If you want to understand how the world works read this! I have read a lot of these types of books recently and this is the most accessible.
 Animal Spirits November 10, 2009
James A. Montanye
Economists today are justly concerned about the inability of neoclassical economics' as if assumption of hyper-rationality to explain, no less to predict, the macroeconomic swings of recent years. They also are concerned that incremental policies based upon this assumption often worsen already bad situations. So, if the answers do not lie within economics, then where are they to be found?
Two distinguished economists, George A. Akerlof (Berkeley) and Robert J. Shiller (Yale), believe the failures of economic theory result from economists' failure to incorporate the peculiarities of human behavior into macroeconomic models. Accordingly, their book, "Animal Spirits: How Human Psychology Drives the Economy, and Why it Maters for Global Capitalism," conflates theory and evidence from social science with that from economics. They argue that economists and policy makers must pay closer attention to human nature as it is, and not as the self-serving assumptions of neoclassical economics require it to be.
The authors shun the sociobiological meaning of "animal spirits," which explains human behavior in terms of survival and reproductive value. They adopt instead a stylized meaning, calling it "an economics term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming out fears and indecisions" (4).
The authors describe five animal spirits judged relevant to macroeconomic performance; viz., confidence, fairness, corruption and bad faith, money illusion, and storytelling. The balance of their book tells stories about macroeconomic glitches caused by "irrational behavior and non-economic motives" (168). (Economists traditionally explained such effects in terms of bounded rationality, rational ignorance, and non-pecuniary payoffs.) The authors interpret, along "animal spirit" lines, instances of economic depression, the power of central banks, unemployment, the Phillips Curve, savings rates, asset price volatility, real estate cycles, and minority poverty. They contend that their blend of economic and non-economic factors fits the available data, history, and stories. Conventional economic models, in their view, describe macroeconomic behavior only to the extent that individuals act rationally and have purely economic motives. It falters, by comparison, where behavior is less than fully rational, and where payoffs are not easily expressed in money terms. They conclude, therefore, that "[i]t is necessary to incorporate animal spirits into macroeconomic theory in order to know how the economy really works" (168).
The book offers no detailed answers to the troublesome questions raised within. Accordingly, the authors' conclusions are general and rather predictable. They aver that "if we thought that people were totally rational, we too would believe that government should play little role in the regulation of financial markets, and perhaps even in determining the level of aggregate demand" (173). However, "a world of animal spirits gives the government an opportunity to step in. Its role is to set the conditions in which our animal spirits can be harnessed creatively to serve the greater good. Government must set the rules of the game. ... Without intervention by the government the economy will suffer massive swings in employment. And financial markets will, from time to time, fall into chaos" (173). The authors identify several issues that they contend cannot be resolved through economic reasoning alone, requiring instead a "detailed understanding of confidence, of fairness, or opportunities for [private] corruption, of money illusion, and of stories that are handed to us by history" (176). This book, in their view, provides "the background story within which all of these answers should be worked out. And it also stresses the urgency for setting up the committees and commissions to develop the reforms in financial institutions and the regulations that are so immediately needed" (176).
The case for economic performance being more complex than is dreamt of in the philosophy of neoclassical economics is worth arguing, and the authors make interesting work of it. Their prescription, however, ignores what is perhaps the most challenging problem of all - that the individuals appointed to committees and commissions are vulnerable to the same animal spirits and instincts as the populace whose interests these individuals are called upon to represent.
Competing explanations of macroeconomic behavior paint a darker and arguably more complete picture of human nature and macroeconomic performance. Public Choice reasoning, for example, suggests that policies intended to overcome animal spirits are liable to worsen macroeconomic performance. The authors's story is consistent with this conclusion. Their discussion generally avoids the countervailing problem of political self-interest. Where necessity requires them to address it, however, their analysis is devastating. For example, they attribute the current financial crisis to a real estate bubble arising from irrational overconfidence (an animal spirit) plus widespread uncertainty as to the point at which the bubble would stop rising and ultimately burst. Surprisingly, they describe the crisis' root cause without recourse to their "animal instincts" thesis; to wit:
"Andrew Cuomo, Secretary of the Department of Housing and Urban Development, responded [to the claim that minorities deserved a greater opportunity to amass real estate wealth] by aggressively increasing the mandated lending by Fannie and Freddy to underserved communities. He wanted results. The possibility of a future decline in home prices was not his concern. He was a political appointee. His charge was to secure economic justice for minorities, not to opine on the future of home prices. And so Cuomo forced Fannie Mae and Freddie Mac to make loans, even if that meant lowering credit standards and relaxing the requirements for documentation from borrowers. There was never any serious examination of the premise that this policy was in the best interest of minorities." (155)
Neither was any serious consideration given to long-term macroeconomic performance. The reader might easily conclude that this fatal policy decision served only the political interest of Andrew Cuomo and the political party to which he belonged. The reader also might conclude that political spirits, rather than animal spirits per se, bear much if not most of the blame for the resulting financial chaos. This suggests a sixth irrational animal spirit affecting macroeconomic performance: the unwarranted belief in government's ability to correct departures from textbook economic efficiency, whatever their cause.
James A. Montanye
Excellent book regarding current economics October 22, 2009
C. Luther (Oak Ridge, TN USA)
0 out of 1 found this review helpful
Animal Spirits was purchased following a recommendation by my daughter's economics college professor. My fiance has been reading it like a fine wine: a few pages at a time. The information presented is very relevant, thought provoking and promotes a clearer understanding of how we humans interact regarding economics. Excellent reading!!!
 A poor coverage of a very important area October 15, 2009
Aussie Banker (Melbourne, Australia)
6 out of 6 found this review helpful
I bought this book in the hope that it would add something new to the many books on this topic I have read.
It was simply a rehash of other people's work, and then poor coverage of what it all means.
The book lacks any real academic grounding. Maybe I simply misunderstood this as a serious book on the topic rather than a populist book.
If you want a good coverage of how interactions drive economics, I strongly recommend The Origin of Wealth.
 Food For Thought October 8, 2009
Marc Eldridge
2 out of 2 found this review helpful
This is an excellent book, if you give it a pass on being about economics. The strange thing is; I bought this book due to a conservative talk show host(s) urging that this is what Obama lists as required reading! So I thought, oh no I better know what is going to happen to my economic future. I can't even recall if the talk show host(s) said, oh no look what the new President is up to.
But once you read it, it's a no brainer: of course we react with our emotions and we can be fooled for better or worse. The net result is we are the economy. If we act on real data we will make the right choice based on an informed decision. This will dampen or remove the wide swings in the market, since we all know what cards we and others are holding (more or less). Said another way, if we can trust the stock broker's, bankers, Wall Street... et al, we can have faith in our decisions and not have to jump back and forth based on false data or promises. The only problem is we have to have faith in someone to make sure the data is accurate / true with regulations etc.... In the book that someone is the government. Well we are the government or at least we use to be, or are we still, or can we be? So which problem do we solve first?
Be careful what you read...you might learn something...others are telling you doesn't exist.
Showing reviews 1-5 of 55
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