The intended audience of the book is general, but in my opinion the
readers should have some minimal knowledge about economics in order to
understand the book. I believe that most of the readers are persons that have
an interest in economics and are looking for reasons for the economic situation
that the world finds itself in.
The book subject is economics.
The authors state that there are five elements of human behavior which
influence the economy, these being described in the book as following:
Confidence or the lack of it in the economy and one’s personal place in
it. Confidence is described as an important factor to determine investment
decisions, and it is claimed to be at the basis of such decisions. The
Keynesian multiplier to confidence can be applied.
Fairness can override rational analysis, being a
biological need. People desire exchanges of equal value and they like to live
up to what they think is fair and expect the same thing from the others, these
concepts being brought into economics.
Corruption and bad faith have great influence on people’s confidence,
and the scandals determine the severity of a crisis.
Money Illusion happens when people do not take into account the real, or
relative, value of things, looking only at the nominal value when making their
decisions, this meaning that people forget about the impact of inflation when
making purchasing, investment, salary or other decisions.
Stories are essential for people to understand themselves and the world
around them and to interpret the economic past, present, and future. They have
great power to drive economies.
The authors, Akerlof and Shiller, next apply the above mentioned factors
in order to explain why depressions occur , how central bankers can influence
the economy, why unemployment occurs, why people don’t save properly, why
investments are volatile, why real estate markets go through cycles, why
poverty is more common among minorities, and most vital, what should be done
about the current financial crisis.
The purpose of the book is essentially to overlay the “animal spirits”,
as defined by Keynes. The standard
economic assumptions that the economic actors have, “rational expectations”,
are shown to be incorrect.
The contribution that “Animal Spirits” make to the field is
based on rethinking economic theory, particularly macroeconomic theory, in
order that it better takes account of human irrationality.
The treatment of the subject matter, in our case the appliance of the
insights of the authors about the five “animal spirits” into solving or
explaining vital economic questions and problems, is objective, though at times the authors
give in to their political bias and lose their objectivity.
The authors say that in order to understand how economic works, one must
pay attention to the “thought patterns that animate people’s ideas and
feelings, their animal spirits.” (Akerlof and Shiller 2009) , mentioning that
individual feeling, impressions and passions variations matter in the aggregate
, due to the fact that these are found in our everyday thinking. Also, the
authors’ mention that in the study of economics, as taught in universities, the
focus is too much on just the numbers and graphs . The chapters on confidence,
fairness, corruption and bad faith make solid points about how impactful these
are on the economy and how, overall, our emotions lead us to decisions that the
numbers might not say are rational.
The writing is engaging and elegant at the level of sentences and
paragraphs, but it is somewhat unfocused and repetitive at the level of
sections, chapters, and the overall book. This somehow reduces the clarity and
obscures a little the chains of reasoning in the book.
Some of the issues raised by the book are:
How much individual and group psychology matters when
it comes to economics, both microeconomics and macroeconomics.
How the effects of the five “animal spirits” are
generally amplified by the feedback processes.
Bad macroeconomic policies can unleash the “animal