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Psychology of the Economic Tsunami And Global Capitalism

February 2, 2009

"Animal Spirits" Tells Us Just How Human Psychology Drives the Economy and Why It Matters for Global Capitalism

by staff writer

NEW YORK (RUSHPRNEWS) 02/02/09-- Robert Shiller is a professor of economics at Yale University in the USA and chief economist at MacroMarkets LLC. He has a new book out now, co-authored with George Akerlof, titled "Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism." Princeton University Press published it this month.

In a recent oped piece in the Wall Street Journal, Shiller explained what the term "animal spirits" means in his book title.

"The term 'animal spirits,' popularized by John Maynard Keynes in his
1936 book 'The General Theory of Employment, Interest and Money,' is related to consumer or business confidence, but it means more than that," Shiller wrote. "It refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people."

http://online.wsj.com/article/SB123302080925418107.html

Shiller goes on: "Fiscal policy adjustments are what almost all the pundits and the economic policy advisers have in mind when they say now is the time to pursue Keynesian policies. Especially now, when conventional monetary policy is ineffective, since short-term interest rates on safe assets are close to zero, Keynesian theory would argue that the government should have a fiscal target. If spending would otherwise be less than full employment GDP, the government should put more money into people's pockets."

And he adds: "But lost in the economics textbooks, and all but lost in the thousands of pages of the technical economics literature, is this other message of Keynes regarding why the economy fluctuates as much as it does. Animal spirits offer an explanation for why we get into recessions in the first place -- for why the economy fluctuates as it does. It also gives some hints regarding what we need to do now to get out of the current crisis."

Co-author George Akerlof is a professor of economics at the University of California, Berkeley. He was awarded the 2001 Nobel Prize in economics. Shiller also wrote the best-selling books titled "Irrational Exuberance" and "The Subprime Solution".

What are fellow economists saying about Shiller's new book? Robert Solow, a Nobel Prize-winning economist says: "This book is a sorely needed corrective. 'Animal Spirits' is an important -- maybe even a decisive -- contribution at a difficult juncture in macroeconomic theory."

Dennis Snower, president of the Kiel Institute for the World Economy, said this: "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."

"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," said George Perry, an economist at the Brookings Institution in Washington, DC.

BOOK LINK WEBSITE
http://press.princeton.edu/titles/8967.html

"Animal Spirits:
How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism"
George A. Akerlof and Robert J. Shiller
February 1, 2009
US$24.95 / £14.95
264 pages
Princeton University Press

AUTHOR WEBSITE LINK:
http://www.econ.yale.edu/~shiller/

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