|  | Authors: George A. Akerlof, Robert J. Shiller
Publisher: Princeton University Press
List Price: $24.95
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Rating:  55 reviews
Sales Rank: 1551
Languages: English (Original Language), English (Unknown), English (Published)
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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Showing reviews 21-25 of 55
 Macroeconomics vs snake oil July 25, 2009
B.Sudhakar Shenoy (India)
7 out of 7 found this review helpful
This book boldly challenges the basic assumptions of macroeconomics, that rational expectations and efficient markets alone drive the economy. These theories fail to factor in "Animal spirits" in human beings. Fundamentally as a biological species, we are not programmed machines and our thoughts and emotions determine our actions. Human motives are not always driven by economic gains and similarly not all responses are rational.
The combination of the two states of our motives, namely economic and noneconomic and the two types of our responses, namely rational and irrational leads to a framework of four situations of human activity in economies:
- Economic motives and rational responses
- Economic motives and irrational responses
- Non economic motives and Irrational responses
- Non economic motives and rational responses
The authors assert that macroeconomics driven by mathematical models at best describes the first situation in the above list. Three of the other situations are completely are missed out in conventional macroeconomics argue the authors. Animal spirits is about the human factors of Confidence, Fairness, Corruption, Money illusion and Stories that are the key influencing factors that guide human actions in these three situations.
What proportion of economic activity occurs in each of the four is not quantified. Suffice it to say that the three situations are significant and completely ignored in conventional frameworks.
There is a chapter each to explain each of the five factors that describe animal spirits in the economic context. That explains wide swings in markets. In a way this book is a logical extension of Prof Shiller's "Irrational Exuberance" that correctly forecast the collapse of Dot coms and the housing bubble. This book further exposes the myth that housing and real estate prices are always bound to go up since there is not enough land and shelter on this planet for a growing population.
I am inclined to link the concepts in Malcolm Gladwell's path breaking book "The Tipping Point" to the sudden growth in buying interest in a certain sector, housing for example, just as the phenomenon by which some fashions become suddenly popular, and then slowly die down. There is a peak for fashions and a peak for market madness when "snake oil" sells briskly. Tulip manias are a repeating phenomenon, causing wild swings in markets, never explained by classical economic theory based on rational expectations.
The chapter that discusses tradeoff between inflation and unemployment is extremely interesting. Workers do not accept reduction in wages during a downward economic cycle due to "Money Illusion". Even employers consider that such a move would be considered "unfair" by employees. This "wage stickiness" leads to the inevitable job cuts that further depress the economy. Phillip's curve that attempts to explain trade-off between inflation and unemployment comes under close and critical examination.
The role of the Government and the Central bank in stabilizing economies is convincing and concretely explained in the book. The Fed's role in monetary policy is remarkable. Money supply is compared to common salt in our diet. Lack of it or too much of it affects the whole meal. Interest rates and money supply can affect asset valuations of the whole economy on the same note. This is an excellent analogy on a complex topic from the two experts.
The government's role in priming up confidence in the economy through fiscal expansion based on sound principles of Keynesian economics is amply explained.
A prudent and focused fiscal expansion, coupled with a proactive role from the Fed is at the core of the prescription to revive the US economy in the current situation.
National savings play a key role in long term nation building. America's relentless spending spree based on a consumerist culture is not sustainable.
The government's role as a referee in regulating the game of national economics comes out clearly. Else the innocent citizens will be the silent spectators and sufferers at the mercy of unscrupulous elements that sell snake oil. Government intervention is necessary to protect the economy from massive swings in employment and chaos in financial markets.
The final chapter that concludes the book is an excellent summary of all the topics covered in previous chapters.
Highly informative and at times entertaining, the authors do a great job in explaining complex economic theories in very simple language.
 Very disappointing July 18, 2009
L. Templeton (California, USA)
11 out of 15 found this review helpful
This book was a major disappointment. It read like a theory in search of justification. Sure, animal spirits are in play in the market. All human actions are governed by animal spirits, even when we think they aren't. Nothing new there. But the unacknowledged thread that ran through all of their examples was that special interests (S&Ls, banks, etc.) bought changes in the laws or lax oversight that enabled them to make huge amounts of money. Here's where the animal spirits are really at work. Some people will play any angle, including big time corruption, to make a lot of money. Think debt rating agencies, for example. Think various members of our congress pushing Fannie Mae and Freddie Mac to make bad loans on a massive scale. Think the changes in the rules that enabled the S&L scandal or the destruction of Glass-Steagall that enabled the banks to increase their leverage beyond all reason. All the result of collusion between special interests and lawmakers. The story here isn't fairness or multipliers, it's the lengths people will go to to bend the system in their direction. That's animal spirits at work and that's where the real story lies. At one time I thought I could depend on the government to protect me from the worst excesses, but I thought wrong. After all, animal spirits are at work in the Congress as well.
 Disappointing July 16, 2009
P. Johnson
118 out of 131 found this review helpful
Given such accomplished economists, and being sympathetic to behavioral economics I expected better from this volume. The book has obviously been rushed to print. There are numerous errors. Just to give a few examples:
They present Adam Smith as the father of the rational economic man model when in fact he was the author of "The Theory of Moral Sentiments" (a masterwork of psychology) and certainly never claimed that emotions did not matter for economics.
They present Keynes as having "animal spirits" at the center of his theories which is not true. They do not even give the background to the phrase, which was more than two hundred years old at the time Keynes wrote.
They completely misrepresent the work of Milton Friedman generally and with respect to the Great Depression specifically. They even get his ideas about money illusion wrong. They seem hopelessly confused about the difference between Friedman and the later "rational expectations" theory. In fact there is surprisingly little about modern macroeconomics including modern Keynesian thought.
Did they even read Friedman's great work on the Monetary History of the United States? They make a single reference in passing to it in the text. It is extremely meticulous in tracking the events of the Great Depression. Even J.K. Galbraith highly praised it as a work of empirical research.
Although they discuss bubbles and speculation the general reader would finish the book with no idea that experimental economists have been replicating and studying these phenomena in the lab for over 20 years and have discovered many things about what contributes to them. This is part of the authors' pattern of setting up mainstream economics as a straw man with no concern for psychology.
A more fundamental flaw is that they never make a persuasive case that animal spirits are the core of the problem. Yes there are many historical anecdotes and stories - but there is no overall scheme or theory in this book. It's a mess of disconnected thoughts, stories, anecdotes etc..
On a final note, there is a degree of condescension to the general reader which is quite irritating. For example, in discussing poker in the introduction we are informed that players often try to deceive their opponents and this is called ... "bluffing." (!)
In summary, a book that was rushed to market.
Can behavior psychology save us? July 12, 2009
Donald Hsu (NYC, United States)
4 out of 7 found this review helpful
The book is a quick read, 170 pages. Akerlof, Nobel 2001 winner in economics, and Shiller (AS), Yale economist who predicted the real estate and stock crash, got good reviews. #392 on Amazon, is good for an economics book.
Shiller real estate index is a useful tool to compare prices. AS said that psychology, human behavior, animal spirits should play larger roles in economics modeling.
Yes, psychology, human behavior, and animal spirits, can be considered as part of the economic model. You can collect data from consumer survey and then do SPSS analysis to get the results.
CEO will tell you that their companies will hire or not, in the next six months. Sixty percent of the employees will tell you that their jobs are not secure. As a result, they would not spend too much money. These data are psychology/behavior patterns.
In the field of education, social science, finance, management and market research, animal spirits were included in SPSS data analysis, all the time.
AS argue when the economy is down, G8 governments will need to intervene with stimulus and find ways to encourage lending--to restore the confidence.
This already happened with Chinese, Japanese, and European central banks. Obama gave $787 billion stimulus and US government bailed out GM, AIG, etc. How far will the government go?
I personally have problems that government controls 60% of GM. I do not think it is a good business model. Read Peter Schiff's book. He and I agreed that GM should solve its own problem.
Obama is asking Americans to bail out these bad companies and toxic assets with grand children money. Two trillion or more? Second or third stimulus?
However I do like the idea of Public Private Investment Program (PPIP) that these nine companies will raise $500 million each, to buy the toxic mortgages for 2009:
1. BlackRock Inc
2. TCW Group
3. AllianceBernstein, LP; Greenfield Partners, LLC
and Rialto Capital Management, LLC
4. Angelo, Gordon and Co, LP and GE Capital Real Estate
5. Invesco Ltd
6. Matathon Asset Management LP
7. Oaktree Capital Management LP
8. RLJ Western Asset Management LP
9. Wellington Management Co, LLP
Many books on Greenspan's irrational exuberance, consumer sentiments, emotional intelligence, were published in the past 10 years.
Can behavior economics restore the consumer confidence? No one knows.
This is a "must read" book July 5, 2009
Bouhari AROUNA (Manhattan, NY USA)
2 out of 2 found this review helpful
"Animal Spirit: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism" is a wonderful book that calls for a different approach of economy. The authors argue that the old economic paradigm (In a self-regulating free market people make rational decisions) doesn't consider the powerful psychological factor that J. M. Keynes called "animal spirits." The books itself offers few details about policy. However its does argue that government should give citizens a sens of confidence in the future through market regulation, which should ultimately get them to start spending and investing again.
Showing reviews 21-25 of 55
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