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.
©2009 George Akerlof and Robert Shiller; (P)2009 Audible, Inc.
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"A Relevant Portrayal of Behavioral Economics"
If you've ever read a book on Behavioral Economics and wondered why PHd candidates spend so much time formulating theories on the obvious, this book is for you. This book is applied Behavioral Economics as it relates to the crisis of 2007 and it is a mostly brilliant work at that.
If you are a capitalist, you might want to stop at the end of Chapter 12 as the authors take off their lab coats and get up on their social apologist soap box in an inexplicable departure from an otherwise coherent book.
One nagging point that the authors might not agree with is what I percieved to be an interchangeable use of "Economies" and "Markets". That strikes me as particularly egregious in a book on behavioral econ.
Absolutely don't agree w conclusion that Animal Spirits can or should be regulated away. Still, well worth a read.
Firstly, I completely agree with the basic premise of this book; current economic theory does not account for the non-economic urges (animal spirits) that greatly effect financial decisions. Unfortunately that is about as far as my agreement extends. I think most economists agree animal spirts are important BUT they are very difficult to quantify, thus the lack of a coherent theory involving animal spirits. This does not seem to bother the authors, who instead of quantifying their theory, tell stories about animal spirits. These stories sound reasonable, but anyone can make up stories that sound reasonable. Such stories are not evidence at all, let alone compelling evidence. Most of the stories, when analyzed carefully, are very weak at best.
The authors propose to show how “corruption” stimulated several recessions. Not only was the argument quite weak, the editors seem to have added a single line after the rest was written indicating that it was clear there were several other more important causal factors.
The authors propose the fact union labor contracts generally don’t include cost of living adjustments in their contracts, or workers strongly fight wage reductions demonstrate that people don’t understand inflation (the money illusion). I suspect union contract negotiators are quite aware of inflation, as are workers fighting wage reductions, and instead they don’t want COLAs or wage reductions because accepting such deals are not good long term negotiating tactics. Certainly many people don’t always consider inflation properly, but I think the authors significantly over-emphasize this weakness.
The authors propose the root cause of the 2007 financial crisis was the MAC’s loosening credit to high risk minorities. This loosening caused private mortgage providers to loosen their credit. Of course this makes no sense if the mortgage provider was planning to keep the mortgage. My favorite book on the 2007 crisis (The Big Short) gives a very different, more compelling, and a bit more complex explanation. Very briefly, financial analysts found they could package very diverse sets of mortgages and demonstrate these diversified products would have performed well in almost any historical period. They used this data to convince the largest, most sophisticated, insurance company on the planet to insure the product, then they included the insurance with the product. Rating agencies reasonably rated these products highly. The story was mathematics and computers allowed regional risk to be diversified then insured making these products highly profitable, yet low risk. One problem, once the banks found they could sell these mortgages as fast as they could write them, they started writing mortgages with higher and higher risk. This rendered all the statistics completely useless, but the story had been proven, so the process continued, until the mortgages began to fail across all regions, all at once, at very high rates. It quickly became clear these products were incredibly risky.
The combination of over simplification, weak supporting evidence, and a complete lack of specific practical proposed actions makes this book utterly impotent.
The idea that the government should somehow regulate these vague, non-quantitative, animal-spirits is simply frightening.
"An Amazing Surprise"
I really wasn't sure what I was getting into with this book. Some weird philosophy? Spirit world influence? Another conspiracy book?
None of the above.
Brilliant insights into the ills of our economy. Ethics? Amen.
Whatever you think this book is, it's not. Try it. You'll like it.
Apparently influential in the Obama administration. Good to see the basics of behavioral economics being applied to a macro-economic book. Helped me get a better sense of why I paid too much for my house, why some folks are still poor, why jobs seem harder to come by, and why the folks making economic policy often seem like dumb apes. Well written and informative. Makes a good argument for the benefits and limits of capitalism and the necessity of regulation to protect our investments and jobs.
"Five animal spirits and eight questions"
This is a book on economics. The authors want to introduce the concepts of 1) fairness, 2), confidence 3) corruption, 4) money illusion, and 5) stories as items on a list called “animal spirits”. While these are harder to put to numbers than creating something like a Consumer Price Index, the authors use them to answer eight questions. Some of the eight questions are as follows: 1) Why do economics fall into depression? 2) Why do central banks have power over the economy as fair as they so do? 3) Why are there people who cannot find a job? 4) Why is there a tradeoff between inflation and unemployment in the long run? 5) Why is saving for the future so arbitrary? 6) Why are financial prices and corporate investments so volatile? 7) Why do real estate markets go through cycles? 8) Why does poverty exist for generations about disadvantaged minorities?
Our world has a number of countries with different types of governments. From an economic viewpoint, the ones on the extreme ends of the scale are Singapore and Germany. European countries such as Germany have more governmental regulations than the US. Countries like Singapore have less. The authors are big fans of Keynes and thus would like to see government become bigger and thus more like a European government. Fortunately, the book does not devote much time to politics. Two books that are heavier in politics but with opposite viewpoints are Jack Welch’s Straight From the Gut and the one written by a leader of the Security Exchange Commission (SEC). The title is Take on the Street.
"Keynes would be proud"
This book isn't all that bad. The narration is very good, some of the ideas are convincing. But most of it is just classic keynesianism, which tends to explain everything by explaining nothing. For example, when it comes to confidence, the author explains that the problem of the current crisis can be explained by the loss of confidence and that we must restore confidence to restore the economy. It's a bit like explaining that rain is causing a flood and then explaining how stopping the rain would stop the flood: ain't helping much, we all knew that. The hard question is what caused the rain, what created the loss of confidence?
Not a bad read/listen, just, a bit superficial in the analysis. But again, that's classic keynesianism right there.
"Good Book Poor Narration"
This book does a good job of explaining how actual humans don't often follow the rational behavior that classical economists theorize.
Unfortunately, the narration is so bad and annoying (when the narrator breathes in an audible sound is heard every few seconds) that it is almost impossible to listen to.
Don't buy this audio book. You will be disappointed.
"More than Expected"
From the title, I mistakenly put of reading this gem, thinking it another behavior economics book. It's a must read for any investor.
I was interested in the book based on title & concept. Greatly disappointed. Continual reference to need for regulation because people are unreliable without acknowledgement to the fact that regulators are people.
Great insight into individual behaviours. By personal experience know how much some of the animal spirits such as fairness plays a role in ones behaviour. Also concepts presented in way easy to comprehend.
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