|  | Authors: George A. Akerlof, Robert J. Shiller
Publisher: Princeton University Press
List Price: $24.95
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Rating:  55 reviews
Sales Rank: 1267
Languages: English (Original Language), English (Unknown), English (Published)
Media: Hardcover
Pages: 264
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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 26-30 of 55
 Interesting, but prior knowledge of economics is required July 5, 2009
Charles Evans (North Carolina)
4 out of 4 found this review helpful
First a word of cations, "Animal Spirits" is not like some other recent popular books on economics (Suchs as Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (P.S.)). "Animal Spirits" requires at least a basic understanding of macroeconomics (actually the more advanced your knowledge the better). There is a considerable amount of time given to what they feel is wrong with the legacy of Milton Friedman. So as a warning, if you do not know who Milton Friedman is.... this is probably not the book for you.
"Animal Spirits" is a book that will make many economists uncomfortable. The premise is that Economics can not be fully explained fully by the use of econometric formulas and the premise that all consumers/investors only make rational decisions. This may not sound like much, but a partial debunking of "the rational decision" mantra chips at the entire foundation of classical economics. As you probably know the authors (Akerlof and Shiller) are two of the most respected in their fields.... powerhouses really. They exert influence in the entire profession so right-or-wrong their opinion matters.
What are these Animal Spirits?
1 - Confidence and its multipliers
2- Fairness
3 - Corruption and Bad Faith
4- Money Illusion
5 - Stories
The authors go into detail and give convincing arguments on how each of these five animal spirits rational decision making. An example would be in "Stories" the supposed fact that real estate prices "only" go up. This "Story" became folk lore and caused investors to make ill-informed/irrational investment decisions.
Ultimately, "Animal Sprits" serves as a reaffirmation of Keynesian policy and sings the praises of both monetary and fiscal policy. The authors state that government regulation is the most effective way to keep "Animal Spirits" at bay and help reduce the economy's tendency for violent swings.
Personally, I have always been a believer in Keynesian policy, so my natural bias is to agree with a majority of what is in "Animal Spirits". However, there are areas that I would need much more information before I take "Animal Spirits" to be the gospel. The chapter of "Special Poverty" and the need for affirmative action does not pass the sniff test - while I agree that the premise of the argument (there is a sense of "Us" vs "Them") it is difficult to understand how affirmative action eliminates this.
FInal Verdict -
Yes, I feel that this book was a bit rushed. The writing isn't especially engaging and some of the examples weren't as well thought as I would have liked. However, it is difficult to argue with the underlying logic shown by the authors or to underestimate their credentials. The concept of "Animal Spirits" is not new, but a new debunking of the "consumers are completely rational" mantra is bound to create significant waves.
4 stars
 A Complete Nonsense June 29, 2009
N. Demir Kupeli (Ankara, Turkey)
2 out of 20 found this review helpful
I wish the Authors had some knowlegle of psychology/psychiatry before writing this book. I was expecting out of this book establishing a relation between the economic tides (business cycles) and the manic depressive disorder (psychology) of humans. This disorder also considered to be bipolar disorder in psychiatry. Yet this book turns out to be a complete disappointment for me. That is, talking about everything, including immorality, without a fremework. I really wonder, is there anyone who can summarize this book? Definitely I can not!
 Economics is a Dynamic System June 29, 2009
Hubert I. Flomenhoft (Palm Beach Gardens, FL USA)
12 out of 15 found this review helpful
I am a retired engineer who worked on many problems of system dynamics. I am not knowledgeable about the field of economics as are most of the reviewers which I read. I was motivated to read "Animal Spirits" mostly because of my disgust at the Adam Smith-Milton Friedman blind adherence to the concept that "markets are self-correcting" and I wanted to read how two outstanding economists would show how human actions can destabilize the system. Alas, I was disappointed. The book is worth reading, but I did not find it an easy read. Partly, it was because of my unfamiliarity with the vocabulary of the economists, and partly because it droned on and on, saying the same things in different ways, which is so typical of these types of books. What shocked me, though, was that, although the authors spoke several times about "feedback," the word "stability," or variations thereof, did not occur once in the 176 pages. A function of several variables can be well-behaved over most of its range, but have singularities where the function goes to infinity. Conversely, a function may be mostly unstable, but have small ranges of stability. An analogy of the latter would be the classic example of the marble carefully balanced at the top of a convex surface. Any small disturbance which moves the marble, however imperceptibly, away from its balanced position causes it to depart ever more from that position. However, now consider that there is a small depression at the top of the convex surface. Within that small region, the system is stable and the marble will return to the center. Adam Smith prevails! As long as all is at or close to equilibrium, and there are minimum external disturbances, people behave in a rational manner and the system is self-correcting. But if there should be an input that pushes the marble past the depression, it will move ever away from the middle. When it has not gone too far, small corrective forces can stabilize the system. The actions by the Fed in adjusting credit and money supply were quite effective when the system was not too far from equilibrium, but when "irrational exuberance" took hold, the system became vulnerable to corruption or financial chicanery. An analogy for human reactions which drive the system to extremes, up or down, is the ouija board. Everyone puts their fingers lightly on the planchette to follow its movements as if caused by some supernatural force. Some little disturbance causes it to move and everyone follows, they think, but they are really pushing it in concert to the edge of the board. Akerlof and Shiller, following Keynes, call it "animal spirits." But it is just the natural herding tendency of many types of living things. Another good analogy for the economic system is the broomstick, which one can easily balance on a fingertip. When it is near balance, it is easy to control it with small motions of the hand (actions of the Fed). When it starts to fall, it takes violent corrective motions of the hand to catch it and restore balance (stimulus programs). If these fail, the broom falls to the ground -- the system collapses (The Great Dpression). It is unfortunate that Akerlof and Shiller did not pull their argument together at the end and make the point that animal spirits in their feedback effects act to destabilize the system. Some form of controller must be employed, whether by private or governmental action. See the article by Brian Hayes, "Everything is Under Control," in the May/June 2009, issue of American Scientist. Akerlof and Shiller make good points on multiplier effects, but never brought out the fact that credit is the multiplier for liquid cash and is an inherent part of the "plant," as the control-system designer calls it, the operating element of the economic system which converts materials and labor into useful outputs. Credit is the amplifier and, as everybody knows from squealing public-address systems, excessive amplification can cause instability. Excessive credit has been noted by many writers as one of the causes of current (June 1009) difficulties. Akerlof and Shiller seem to give up on the possibility of treating animal spirits in any quantitative way. I suggest that much could be done by further research on this topic. And, to add another engineering thought, to find ways to just slow down the pace of transactions in proportion to the magnitude of recent changes, a mechanism which would be the equivalent of adding damping to an oscillating system.
Nice read, too much slant June 29, 2009
Richard T. McCallister (Torrance, CA)
8 out of 9 found this review helpful
Laced with examples and stories of how "Animal Spirits" impact our economy, this book is an enjoyable read. The authors' main point is that the study of economics, as taught in universities, focuses too much on just the numbers and graphs and dismisses the "thought patterns that animate people's ideas and feelings, their animal spirits." Chapters on confidence, fairness, corruption and bad faith make many good points about how impactful these are on the economy and how, overall, our emotions lead us to decisions that the numbers might not say are rational.
These are excellent points. However, the book doesn't quite do the job of pulling everything together as convincingly as it might. It goes overboard in many ways without substantiating its arguments. The authors say that they started writing the book in 2003, but it read more like it was thrown together and rushed out the door to sell in our current economic environment.
As a quick aside, the title might seem a little odd to someone not familiar with "Animal Spirits". The term comes from John Maynard Keynes, a well known economist from the 1930's, whose writings are the basis of Keynesian Economics. Many current economists base their viewpoints on Keynes' concepts, particularly when arguing for support of the stimulus package. In any case, in his famous 1936 book The General Theory of Employment, Interest and Money, he used the term "Animal Spirits" to describe the thought patterns mentioned above. Now the term "Animal Spirits" is widely used in economic circles when discussing emotion and its affect on human behavior.
One of the best chapters in the book is on Money Illusion. Money Illusion occurs when people don't take into account the real, or relative, value of things. Instead they only look at the nominal value when making their decisions. In plain English, this means that people forget about the impact of inflation when making purchasing, investment, salary or other decisions. . I see examples of this every day when talking to clients and colleagues. Akerlof and Shiller make the excellent point that since the 1960's the concept of Money Illusion was driven out of mainstream macroeconomic thought.
The authors don't support all of their arguments well and I don't agree with all of their arguments in this chapter. For example, they argue that, without Money Illusion, mortgages would all be indexed somehow to inflation; but they are ignoring one's need to have the certainty of fixed payments for planning. Since one cannot know how things will be adjusted in the future, they opt for a fixed payment stream. This does not necessarily imply that Money Illusion is involved in the decision (although it certainly may be in some cases). They take their argument too far here.
Page 173 spells out, in a fairly clear manner, the authors' political points of view. "Without intervention by the government the economy will suffer massive swings in employment. And financial markets will, from time to time, fall into chaos." I find this selection stunning in what it leaves out. Government involvement in the Great Depression clearly caused tremendous swings in employment and amazingly large moves in the financial markets. To say that government will prevent them strikes me as surprisingly naïve. I do believe we need to change how and what we regulate, but throughout the book the authors seem to suggest government involvement as the panacea.
Clearly, the capital markets need some rules and regulations under which to operate, and those areas with lax or no regulations (i.e. credit default swaps) contributed greatly to the economic position we're in. However, the book goes overboard in its recommendations of government regulation and control without sufficient support for its argument.
Apparently this book has been read by some of the top policy makers in the Obama administration. I hope that the issues the book raises with respect to "Animal Spirits" are reflected in their policy, while many of the solutions presented in the book are not.
Overall, this is a fairly easy and quick read, and although I'm rating it only 3 stars, I recommend it for the layperson with an interest in economics and in looking at some of the reasons for the situation in which the U.S. -- and the world -- find themselves. My caveat is that, should you choose to read the book, you are very careful in accepting the authors' solutions to solving our economic issues.
 Animal Spirits June 27, 2009
James Tokarski
1 out of 2 found this review helpful
Interesting presentation of economic principles & theories; will make you question the classical approach to economics.
Showing reviews 26-30 of 55
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