Animalism, vitalism, and whatnot, it suggests, all connote a universe in motion, one filled with contending forces that are constantly changing into one another. It’s a “vision of universal animacy” that “has miraculously come to seem scientific again.” Such animacy may seem dialectical, but it lacks the essential Hegelian elements of progress and direction. Instead, it’s just a swirl for its own sake, one whose only purpose is to swirl and then swirl some more. What are these animal spirits that drive the American economy? Far from dispassionately weighing and analyzing all the options, people act on the confidence, or overconfidence, that a home they are about to buy will be worth more a year later.
We meet the great prophets of American vitality, from Walt Whitman and William James to Andrew Jackson Davis (the “Poughkeepsie Seer”) and the “New Thought” pioneer Helen Wilmans, who spoke of the “god within—rendering us diseaseless incarnations of the great I Am.” Economists create impressively complex formulas attempting to accurately describe the state of the economy and predict future trends. However, there are just too many unquantifiable variables – feelings, emotions, intuition, and confidence– to accurately incorporate all available information into a simple neat equation. Incorporating psychology into economics may not sound like much of a breakthrough. But Akerlof and Shiller have stepped outside of current economic thought to gently nudge animal spirits back to the discipline. According to Mr. Lears, the period between the Civil War and World War I was when the cage snapped shut.
Akerlof and Shiller are the first to try to rework economic theory for our times. 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. In their new book, two of the most creative and respected economic thinkers currently at work, George Akerlof and Robert Shiller, argue that the key is to recover Keynes’s insight about “animal spirits” – the attitudes and ideas that guide economic action.
So what do all the sightings that Lears assembles add up? A well-informed, engrossing consideration of the significance of vitalist ideas. Akerlof and Shiller spent five years writing “Animal Spirits” and honing that conviction. They are concerned that once we enter a revival, pressure will inevitably build — just as it did in the late 1970s, more than a generation after the Great Depression — to give the markets free rein again.
Animal Spirits: The American Pursuit of Vitality from Camp Meeting to Wall Street
Daniel Lazare is the author of The Frozen Republic and other books about the US Constitution and US policy. He has written for a wide variety of publications including Harper’s and the London Review of Books. He currently writes regularly for the Weekly Worker, a socialist newspaper in London. But what does it all have to do with animal spirits? Animal Spirits does marshal an argument of sorts, but it’s exceedingly muddy.
He also introduced the world to “animal spirits,” coining that phrase to describe a range of emotions, human impulses, enthusiasms and misperceptions that drive economies — and ultimately unwind them. The economists who interpreted Keynes “rooted out almost all of the animal spirits — the noneconomic motives and irrational behaviors — that lay at the heart of his explanation for the Great Depression,” Akerlof and Shiller declare. The book was mostly written before the crisis became acute. A little awkwardly, the authors have tacked an excellent postscript, about what needs to be done, on a chapter about monetary policy. The connections between their thinking on the limits to conventional economics and the issues thrown up by the breakdown are plain, even if they were unable to make every link explicit. Even more than Akerlof and Shiller could have hoped, therefore, it is a fine book at exactly the right time.
- “[A] master class in American cultural and intellectual history.” —Sarah E.
- From blind faith in ever-rising housing prices to plummeting confidence in capital markets, “animal spirits” are driving financial events worldwide.
- The five key animal spirits are treated here, each assigned their own chapter.
- Dogged original research and superb narrative skills come together in this gripping account of pitiless evil.
- Akerlof has long believed that in most market situations a government role can improve the outcome.
One of my special occasion gins for special guest! Great service from Animal Spirits, well wrapped and delivered quickly. He attacks prowar journalists like George Packer, a longtime staffer at the New Yorker, for playing “an important supporting role in … resurrecting faith in regenerative war” after 9/11, which is on-target as well. Lears leaves such quotes on the cutting-room floor because that is what dutiful left-Keynesians are supposed to do. He does better when he gets to Norman Mailer a dozen or two pages later, but, then, Mailer is a target of barn-side proportions.
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They do this by drawing on the greater understanding of human psychology that exists today, and which Akerlof and Shiller, along with other economists, have incorporated into the relatively new field of behavioral economics. Well before John Maynard Keynes stressed the reliance of capitalism on investors’ “animal spirits,” these vernacular vitalists established an American religion of embodied mind that also suited the needs of the marketplace. In the twentieth century, the vitalist impulse would be enlisted in projects of violent and racially charged national regeneration by Theodore Roosevelt and his legatees, even as African American writers confronted the paradoxes of primitivism and the 1960s counterculture imagined new ways of inspiriting the universe. Today, scientists are rediscovering the best features of the vitalist tradition—permitting us to reclaim the role of chance and spontaneity in the conduct of our lives and our understanding of the cosmos. George Akerlof and Robert Shiller’s book, Animal Spirits, offers an accessible look at how traditional economics can be expanded by incorporating some basic concepts from psychology.
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And their book takes their case not just to economists, but also to the general reader. It is short (176 pages of text) and easy enough for laymen to understand (most of the time). But another aspect of Keynes’s thinking did not fare well.
Workers for example will forgo a pay rise even when prices are rising, if they know that their firm is facing challenging conditions—but they are much less willing to accept a pay cut even when prices are falling. Chapter by chapter, the analysis is fascinating and usually persuasive. Whether the larger project can be made to hang together, though, I doubt. The authors’ criticisms of the standard model are well taken and not that controversial. The orthodoxy assumes rational optimising behaviour, and is reluctant to contemplate more than minor deviations from that principle; as a result, it often goes astray. Ad hoc modifications, such as those the authors suggest, may get better results.
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Akerlof, a professor at the University of California, Berkeley, shared a Nobel Prize in 2001 for his work on “asymmetric information,” which means that some parties to a transaction know more about the deal than others, like the used-car salesman who knows more about the shortcomings of the vehicle he is trying to sell than the customer he is pitching. Lemon laws, protecting consumers, grew out of such findings. Akerlof has long believed that in most market situations a government role can improve the outcome. Above all, they challenge the reigning free-market ideology of the past 30 years or so, from the rise of Margaret Thatcher and Ronald Reagan to the abrupt arrival of the present crisis late last year. That ideology held that markets should operate free of government because they were rational. But if animal spirits influence behavior, then government must play a broad, disciplinary role, and do so permanently.
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. Without saying how, the book aspires to go further and calls for a new standard model. The assumption of rational optimisation is a gross simplification, no doubt, but despite all the drawbacks emphasised in the book, it has been a highly productive one. Shiller and Akerlof would be the last to deny the power of the insights it has yielded. At issue is whether a psychologically enriched standard model would be too complex to offer useful simplifications.
The term “animal spirits,” originally coined John Maynard Keynes in the 1930’s, describes how impulses and emotions naturally lead to economic boom and bust cycles. Traditional economists seem to have ignored even the most animal spirits primitive of these spirits. The question assumed different shapes at different moments. Vitalism was a trans-Atlantic phenomenon, at once a formal philosophical stance and a popular idiom, making it challenging to track.