Animal Spirits : How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (New Edition)

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. In a new preface, they describe why our economic troubles may linger for some time--unless we are prepared to take further, decisive action.

This book is a sorely needed corrective. Animal Spirits is an important--maybe even a decisive--contribution at a difficult juncture in macroeconomic theory.--Robert M. Solow, Nobel Prize-winning economist

This book is dynamite. It is a powerful, cogent, and convincing call for a fundamental reevaluation of basic economic principles. It presents a refreshingly new understanding of important economic phenomena that standard economic theory has been unable to explain convincingly. Animal Spirits should help set in motion an intellectual revolution that will change the way we think about economic depressions, unemployment, poverty, financial crises, real estate swings, and much more.--Dennis J. Snower, president of the Kiel Institute for the World Economy

Animal Spirits makes a very timely and significant contribution to the development of a new dominant paradigm for economics that acknowledges the imperfections of human decision making, a need which the panic in financial markets makes all too apparent. I am not aware of any other book like this one.--Diane Coyle, author of The Soulful Science: What Economists Really Do and Why It Matters

Akerlof and Shiller explore how animal spirits contribute to the performance of the macroeconomy. The range of issues they cover is broad, including the business cycle, inflation and unemployment, the swings in financial markets and real estate, the existence of poverty, and the way monetary policy works. This book is provocative and persuasive.--George L. Perry, Brookings Institution

The New York Times - Louis Uchitelle

Until now, behavioral economics has focused mainly on a variety of disparate traits that chip away at the assumption of rationality embedded in mainstream theory. A young person, for example, fails to join a 401(k) plan, even one subsidized by his employer, although if he were rational and fully informed, he would certainly sign up. What Akerlof and Shiller do is to highlight this sort of finding, packaging it with numerous other psychological insights into a half-dozen broad maxims that permanently alter the concept of rational behavior. And their book takes their case not just to economists, but also to the general reader. It is short (176 pages of text) and easy enough for laymen to understand (most of the time).

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, The Authors, Both Economists, Challenge The Economic Wisdom That Got Us Into This Mess, And Put Forward A Bold New Vision That Will Transform Economics And Restore Prosperity. They 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, They 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 (i.e. Human Psychology), In Contemporary Economic Life, Such As Confidence, Fear, Bad Faith, Corruption, A Concern For Fairness, And The Stories We Tell Ourselves About Our Economic Fortune, And Show How Reaganomics, Thatcherism, And The Rational Expectations Revolution Failed To Account For Them. The Authors Then Offer A Road Map For Reversing The Financial Misfortunes Besetting Us Today; They Teach How Leaders Can Channel Animal Spirits, The Powerful Forces Of Human Psychology That Are Afoot In The World Economy Today, And Making Them Work For And Not Against Us. Confidence And Its Multipliers -- Fairness -- Corruption And Bad Faith -- Money Illusion -- Stories -- Why Do Economies Fall Into Depression? -- Why Do Central Bankers Have Power Over The Economy (insofar As They Do)? -- Why Are There People Who Cannot Find A Job? -- Why Is There A Trade-off Between Inflation And Unemployment In The Long Run? -- Why Is Saving For The Future So Arbitrary? -- Why Are Financial Prices And Corporate Investments So Volatile? -- Why Do Real Estate Markets Go Through Cycles? -- Why Is There Special Poverty Among Minorities? George A. Akerlof And Robert J. Shiller. Includes Bibliographical References (p. 199-218) And Index. 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, the authors, both economists, challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity. They 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, they 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 (i.e. human psychology), in contemporary economic life, such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortune, and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them. The authors then offer a road map for reversing the financial misfortunes besetting us today; they teach how leaders can channel animal spirits, the powerful forces of human psychology that are afoot in the world economy today, and making them work for and not against us. This text provides a picture of how a capitalist economy works, especially at the macro level. It considers eight questions about the working of the economy. This provides the background that is necessary to take on other questions about macroeconomic policy, finance, bankruptcy law, and others, and to begin to answer them. From acclaimed economists George Akerlof and Robert Shiller, the case for why government is needed to restore confidence in the economy 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. In a new preface, they describe why our economic troubles may linger for some time—unless we are prepared to take further, decisive action. 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 Cover 1 Title 4 Copyright 5 Contents 6 Preface to the Paperback Edition 8 Preface 22 Acknowledgments 28 Introduction 32 Part One: Animal Spirits 40 One: Confidence and Its Multipliers 42 Two: Fairness 50 Three: Corruption and Bad Faith 57 Four: Money Illusion 72 Five: Stories 82 Part Two: Eight Questions and Their Answers 88 Six: Why Do Economies Fall into Depression? 90 Seven: Why Do Central Bankers Have Power over the Economy (Insofar as They Do)? 105 Postscript to Chapter Seven: The Current Financial Crisis: What Is to Be Done? 117 Eight: Why Are There People Who Cannot Find a Job? 128 Nine: Why Is There a Trade-off between Inflation and Unemployment in the Long Run? 138 Ten: Why Is Saving for the Future So Arbitrary? 147 Eleven: Why Are Financial Prices and Corporate Investments So Volatile? 162 Twelve: Why Do Real Estate Markets Go through Cycles? 180 Thirteen: Why Is There Special Poverty among Minorities? 188 Fourteen: Conclusion 198 Notes 208 References 230 Index 250 A 250 B 250 C 251 D 252 E 253 F 253 G 254 H 254 I 255 J 255 K 255 L 256 M 256 N 257 O 257 P 258 Q 258 R 258 S 259 T 260 U 260 V 261 W 261 Y 261 Z 261 Preface Acknowledgments Introduction Animal Spirits Confidence and Its Multipliers Fairness Corruption and Bad Faith Money Illusion Stories Eight Questions and Their Answers Why do Economies Fall into Depression? Why Do Central Bankers Have Power over the Economy (Insofar as They Do)? Why are There People Who Cannot Find a Job? Why Is There a Trade-off between Inflation and Unemployment in the Long Run? Why Is Savings for the Future So Arbitrary? Why Are Financial Prices and Coporate Investments So Volatile? Why Do Real Estate Markets Go through Cycles? Why Is There Special Poverty among Minorities? Conclusion Notes References Index Content: Cover Title Copyright Contents Preface to the Paperback Edition Preface Acknowledgments Introduction Part One: Animal Spirits Part Two: Eight Questions and Their Answers Notes References Index. An argument for recovering Keynes' notion of animal spirits as a contributor to economic phenomena, with examples drawn from the economic crises of the late 20th and early 21st centuries.