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

by George A Akerlof and Robert J Shiller Princeton University Press
Pub Date:
Pbk 264 pages
AU$37.99 NZ$39.99
Product Status: Not Our Publication - we no longer distribute
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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. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity. 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.

In a new preface, they describe why our economic troubles may linger for some time--unless we are prepared to take further, decisive action.

Preface to the Paperback Edition vii

Preface xxi

Acknowledgments xxvii

Introduction 1

Part One: Animal Spirits

ONE Confidence and Its Multipliers 11

TWO Fairness 19

THREE Corruption and Bad Faith 26

FOUR Money Illusion 41

FIVE Stories 51

Part Two: Eight Questions and Their Answers

SIX Why Do Economies Fall into Depression? 59

SEVEN Why Do Central Bankers Have Power over the Economy (Insofar as They Do)? 74

POSTSCRIPT TO CHAPTER SEVEN The Current Financial Crisis: What Is to Be Done? 86

EIGHT Why Are There People Who Cannot Find a Job? 97

NINE Why Is There a Trade-off between Inflation and Unemployment in the Long Run? 107

TEN Why Is Saving for the Future So Arbitrary? 116

ELEVEN Why Are Financial Prices and Corporate Investments So Volatile? 131

TWELVE Why Do Real Estate Markets Go through Cycles? 149

THIRTEEN Why Is There Special Poverty among Minorities? 157

FOURTEEN Conclusion 167

Notes 177

References 199

Index 219

"A truly innovative and bold work. . . . At a time when plummeting confidence is dragging down the market and the economy, the authors' focus on the psychological aspect of economics is incredibly important."---Michael Mandel, BusinessWeek
George A. Akerlof is the Daniel E. Koshland Sr. Distinguished Professor of Economics at the University of California, Berkeley. He was awarded the 2001 Nobel Prize in economics. Robert J. Shiller is the best-selling author of ''Irrational Exuberance'' and ''The Subprime Solution'' (both Princeton). He is the Arthur M. Okun Professor of Economics at Yale University.