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Book Review: 'Animal Spirits' by George Akerlof and Robert Shiller
I find it astonishing that books written on psychology now pass as economic literature. Animal Spirits is most certainly not a book about economics, nor does it contribute anything to the understanding of what is commonly termed the "macroeconomy."
Strangely, academic and institutional economists have shirked "microeconomics" from their treatment of so-called macro issues. It is as if supply and demand become quaint notions as soon as the institutional economist has access to a money printing central bank. What good does inflation do for a country's wealth? How can anyone seriously believe that printing money - that is, lowering the value of each dollar - will feed more, clothe more, or house more? It really is as silly as it sounds.
What does this sort of reckless economic policy accomplish? It distorts the price mechanism, it misguides investment, and, because the cash influx is accomplished through interest rate targeting (buying government debt), it erodes saving. Throw these ills on top of (Shiller and Akerlof recommended) massive government deficit spending, and you have a good shot at a currency collapse.
No, there is nothing profound in this book. It's not even written exceptionally well. 4/5 stars is generous. 2/5 would be, too. I would recommend the recent series of articles by George Reisman for a rectification.
Jun 30, 2009. 04:20 PM
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Book Review: Animal Spirits by Shiller and Akerlof
Are you serious? This book is most definitely not about economics. If anything, its classification is closer to consumer/mob psychology. Economics is distinct from psychology - i.e., it is a different branch of knowledge. Economics analyzes action, not the drive behind the action (that would be psychology). Importantly, any good economist will treat money and prices seriously. Shiller and Akerlof fail to adequately explain the role that money plays in establishing relative prices.
In their assessment of why economies fall into depression, Shiller and Akerlof target confidence, which drives up asset prices. A good question to ask is: where does the money to pay for these astronomical prices come from in the first place? The answer is inflation; whether this inflation comes from fractional reserve banking or the Federal Reserve is largely irrelevant.
Only inflation - or legal counterfeiting - can distort markets on such a grand scale. With a system of a hard money, such extreme aberrations are highly unlikely. Furthermore, their "cures" amount to further price distortion and will prolong this recession and increase unemployment.
A necessary corrective to this thinking can be found in the works of Hayek or Mises or Reisman. I can't say I was impressed in the least, but reading this book did convince me that our academic and institutional economics are in disarray.
Jun 30, 2009. 04:05 PM
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