Akerlof’s and Shiller’s Animal Spirits vs. Purposeful Human Action
In their new book “Animal Spirits”, the economists George Akerlof and Robert Shiller actually consider the effects human behavior has on economic activity. Now you are probably wondering why this is important. The reality is that macroeconomics has pretty much neglected humans and their actions. Is it any wonder that their spurious economic theories failed miserably?
According to Akerlof, him and Shiller successfully integrates economics and psychology, offering valuable insights into important economic issues.
The term “animal spirits was used by John Maynard Keynes in his supposedly landmark book “The General Theory.” He downplayed the power of reason stating that most of the reasons businessmen make investments are psychological. He claimed they were unable to assign probabilities to the success or failure of a project or investment, so they acted on intuition or “animal spirits.” Although Keynes’ so-called economic theories have caused considerable mischief in the form of boom and bust cycles, a person’s intuition does play a role in the decisions he makes.
Even though the authors have proven to possess considerable insight into future economic events, I have a problem with the term “animal spirits.” It makes intelligent people appear as mindless idiots. I agree most individuals rely on their emotions to make a decision; however to justify it they use their reasoning abilities.
I prefer the term “human action.” I believe this encompasses all human actions, which rely on both reason and intuition. Humans are flesh and blood beings that act with purpose, whether the purpose comes from their conscious, subconscious or superconscious—or a combination of the three.
Another fact to consider is that many of the mistakes investors, entrepreneurs and citizens make in anticipating future change is the result of government intervention on the marketplace. All government interference with the pricing structure distorts the information people need to arrive at successful decisions.
The truth of the matter is that when the Federal Reserve System artificially lowered interest rates, creating massive amounts of fiat money, they threw a monkey wrench in the smooth operation of the marketplace. The boom was an illusion, created through inflationary money. The bust cycle is reality rearing its ugly head, demanding payment in the form of a severe recession.
Still, I must state that any book that shreds the myths of modern macroeconomic theory is a step in the right direction.
Robert A. Meyer
http://libertarianway.com/