Akerlof and Shiller argue convincingly that animal spirits give a richer and truer account of economic fluctuations. How to manipulate them for policy purposes, and when it might be right to try, are separate questions. The authors are doubtless sympathetic to the case for “libertarian paternalism” in Nudge, by Richard Thaler and Cass Sunstein – another valuable book that explores the possibilities of “behavioural economics”. What the two have in common is the idea that once you take account of animal spirits, people can be guided, without being forced, to do what is in their best interests. Addressing minority poverty requires going beyond traditional economic policies to address deeper social and psychological factors.

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These phenomena confound widely held cosmopolitan and transnational hopes for political allegiances unbound by country. What social powers and historic conditions have encouraged this resurgence? What desires might it satisfy for particular citizens, and what, exactly, are its effects? Paul Gilroy’s Postcolonial Melancholia and Steven Johnston’s The Truth about Patriotism offer answers to these questions, as both authors interrogate national love by paradoxically foregrounding its violence.

Book Review: Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

Gilroy analyzes the nexus of racism, war, and imperialism in the context of British nationalism; Johnston examines the death demand in patriotic attachments, primarily within American politics. While both books bring canonical and contemporary political theory to bear on these issues, neither falls squarely within political theory’s disciplinary bounds. As the resurgence of national love was unexpected from a variety of political theoretical perspectives, these modes of crossdisciplinary work are vital for analyzing its recent developments. Chapter 14 is a conclusion where the authors state that the cumulative evidence they have presented in the preceding chapters overwhelmingly shows that the neo classical view of the economy, which allows little or no role for animal spirits, is unreliable. They state that an effective response to the current economic crises must take into account the effects of animal spirits. Animal Spirits offers a road map for reversing the financial misfortunes besetting us today.

What are the implications of Animal Spirits for economic policy?

They also advocate for measures aimed at inspiring confidence, mitigating speculative excesses, and fostering stability in financial markets. This book review critically examines “Animal Spirits” by George Akerlof and Robert Shiller, which explores the impact of human psychology on economic behavior and societal norms. It highlights the importance of ideas and emotional responses in understanding economic crises, contrasting the limitations of traditional economic theories. Additionally, the review addresses the challenges within psychological research methodologies and the complexity of social science explanations, emphasizing the need for a broader understanding of human motivations beyond mere cognition.

Further reading

The orthodoxy needs to be rebuilt, and bringing these psychological factors into the core of economics is the way to do it. Understanding animal spirits is particularly crucial during economic crises when confidence, narratives, and non-rational factors play an outsized role. Traditional macroeconomic models that assume purely rational behavior fail to explain many real-world phenomena like persistent unemployment and financial market volatility. Policymakers must account for money illusion when designing interventions. For example, modest inflation can “grease the wheels” of labor markets by allowing real wage adjustments without nominal cuts.

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. 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.

What role does fairness play in wage-setting according to Animal Spirits?

• Animal spirits affect everything from consumer spending and business investment to financial market volatility and labor relations.
• Critics noted its focus on the 2008 financial crisis may date the content.
• In this paper I examine the Patriot Movement, a broad, right-wing social movement in the USA that emerged in response to the economic insecurities of globalization.
• These include confidence, fairness, corruption, money illusion, and stories.

The standard model plus ad hoc modifications suited to the particular case might be the best economics can do. Though it calls for a reworking of economic theory, Animal Spirits is animal spirits not a difficult book. The general reader will be engaged and drawn in.

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There is hence a range of frameworks for understanding rationality that are outside the mainstream, yet their terminology seems to create an umbrella term for this, which is misleading (Dow & Dow, 2011). Hence, in a critique of Akerlof and Shiller, Alexander and Sheila Dow believe that animal spirits are neither random nor entirely explainable, but rooted in the subconscious. They argue that they are ‘neither rational nor irrational, but rather arational’ (Dow & Dow, 2011). Political and economic spheres influence this part of the subconscious, however, they can still be managed by the government. Dow and Dow hence try to locate animal spirits outside the epistemology of the rational, away from the realm of deliberation, into the momentary, instinctual, and emotional spheres. According them, animal spirits ‘are only a part, but an integrated part, of the foundations for action’.

• Paul Gilroy’s Postcolonial Melancholia and Steven Johnston’s The Truth about Patriotism offer answers to these questions, as both authors interrogate national love by paradoxically foregrounding its violence.
• The movement, with its legacy of violence and its calls for local control, illustrates that the submersion of class (as a category that crosses scale) can lead to militant and particularistic responses.
• As the resurgence of national love was unexpected from a variety of political theoretical perspectives, these modes of crossdisciplinary work are vital for analyzing its recent developments.
• Yet, while they reference the Keynesian understanding of animal spirits from an economics perspective, there are critiques with the manner of such reference.
• As a case study I examine the movement in central Kentucky, and an issue around which patriots there have galvanized-calls to legalize industrial hemp.

Ultimately, Akerlof and Shiller attempt to explain as to why crises still occur in a fashion largely unpredictable by conventional economic theories and viewpoints. Yet, while they reference the Keynesian understanding of animal spirits from an economics perspective, there are critiques with the manner of such reference. Is there a pattern to the chaos of irrationality? However, an error of nomenclature arises. While Akerlof and Shiller’s usage of terms such as ‘irrationality’ fulfil the role of accessibility to common readers, they confuse two nuanced conceptions – that which isn’t rational, and that which is beyond the realm of rationality itself.

When confidence is high, spending and investment increase, which further boosts confidence in a positive feedback loop. “To understand how economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits.” Chapter 12 discusses why real estate markets go through cycles, with periods of often rapid price increase interspaced by falls. Chapter 3 discusses corruption and bad faith, and how growing awareness of these practices can contribute to a recession, in addition to the direct harm the practices cause themselves. This is a good moment to propose a re-examination of orthodox economics.

Changes in confidence often outweigh changes in economic fundamentals in driving booms and busts. This explains why economies can experience sudden shifts in momentum that seem disconnected from underlying conditions. Chapter 11 presents an explanation for why asset prices and investment flows are so volatile. Chapter 1 the authors discuss confidence, which they say is the most important animal spirit to know about if one wishes to understand the economy. The five key animal spirits are treated here, each assigned their own chapter.

Akerlof’s research has significantly contributed to the field of behavioral economics, challenging traditional economic models by incorporating psychological and sociological factors. His collaborative work with Robert Shiller in “Animal Spirits” explores the role of human behavior in economic decision-making. Akerlof’s innovative approach to economics has influenced policy discussions and academic research, encouraging a more nuanced understanding of market dynamics and economic phenomena. Having offered evidence of the power of animal spirits, in the second part of the book Akerlof and Shiller give answers to some big questions about the functioning of the economy while putting emotions and human psychology at the forefront of their analysis. They defend the importance of understanding animal spirits when designing economic policies, calling for a holistic approach to policy making.

While there exists extensive literature on what is fair or unfair, such considerations often take a secondary place in the explanation of economic events. The same can be said about money illusion, which occurs when decisions are influenced by nominal monetary amounts. If people were rational, their decisions would only be influenced by relative costs and prices, not their nominal value.