Animal Spirits

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (2009) is a book by economists George Akerlof and Robert Shiller written to promote the understanding of the role played by emotions in influencing economic decision making. According to the authors, economists have tended to de-emphasize the importance of emotional factors, as the effects of emotions are difficult to model and quantify. The book asserts that a variety of otherwise puzzling questions can be answered once one allows for the effect that emotional drives, or "animal spirits," have on economic factors. Akerlof and Shiller began writing the book in 2003. While finishing the work after the Financial crisis of 2007-2008 the authors set themselves the additional aim of promoting a much more aggressive US government intervention to alleviate the crises than has been seen as of February 2009. They repeatedly stress the need for decisive action targeted at restoring credit flows, and that the overall stimulus from the government needs to be much larger than would otherwise be the case due to very low levels of confidence about short and medium term economic prospects. Synopsis The Preface recalls economist John Maynard Keynes's use of the phrase "animal spirits". Keynes (1883-1946) used "animal spirits" to describe the psychological forces that partly explain why the economy does not behave in the manner predicted by classical economics. Developed from the 1700s, classical economics proposed economic actors to behave as unemotional rational beings. The authors assert that the Keynesian Revolution of the mid-20th century was flawed as Keynes-influenced economists progressively disregarded the importance of animal spirits to accommodate the views of economists who preferred the simpler classical or neo-classical system. The preface goes on to describe how Keynes' ideas suggest the economy will function best with a moderately high level of government intervention, which they compare to a happy home where children thrive with parents that are neither too authoritarian (as in a Marxist economy) nor too permissive (as in a neoliberal economy).