April 18, 2009

IF ONLY:

Irrational Exuberance: a review of ANIMAL SPIRITS: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof and Robert J. Shiller (LOUIS UCHITELLE, 4/19/09, NY Times Book Review))

Look around you, George A. Akerlof and Robert J. Shiller say. The second coming of the Great Depression is, like the original, a direct result of animal spirits. If only we had factored those turbulent emotions into economic theory, we might not be repeating the earlier tragedy.

Akerlof, a Nobel laureate, and Shiller, a good bet to become one, are prominent mainstream economists. They don’t deviate easily from orthodox theory, with its allegiance to the proposition that people are essentially rational, well informed and unemotional in the numerous transactions that shape the economy. But in “Animal Spirits,” they have deviated — and they have done so just as mainstream theory self-destructs.

There was nothing rational, well ­informed or unemotional about the behavior that has all but collapsed the economy. That leaves most of America’s economists without a believable framework for explaining how we got into this mess. Akerlof and Shiller are the first to try to rework economic theory for our times. The effort itself makes their book a milestone.


The recovery will come far too soon to break the faith in Homo Economicus.

Posted by Orrin Judd at April 18, 2009 5:29 PM
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