Animal Spirits – Akerloff & Shiller (2009)

Recently read this economics book that makes the case for what Keynes referred to as ‘animal spirits’ as an important driver of economic fluctuations.  The authors break down animal spirits into five ‘categories’:

  • Confidence – over- or under-confidence not justified by objective measures
  • Fairness – the idea that we are often motivated by notions of fairness, to the extent that we will suffer a penalty in order to impose our sense of a fair outcome on others
  • Money illusion – the fact that many of us have a hard time really understanding the effects of inflation and deflation over time, and how that makes some decisions about money today less than optimal
  • Corruption / Bad Faith – the ‘dark side’
  • Stories – the notion that we attach a story to ‘explain’ many phenomena, and often the story takes on a life of its own.

The remainder of the books asks a variety of general economic questions, like Why are there Depressions?, and weaves animal spirits into classical economic theory to provide a richer explanation of the phenomena.

I found the book to be a little hastily written, not quite as throrough as I would have liked.  And in some cases the animal spirits explanations seem so nearly obvious that it shouldn’t take two esteemed professors to have to make the case for them!  The big question is how can the notion of animal spirits be woven into actionable policy in a way that makes sense, and the authors mostly don’t try to provide an answer…  it’s a hard one.

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