Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism


The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity.

Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.

Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits--the powerful forces of human psychology that are afoot in the world economy today. In a new preface, they describe why our economic troubles may linger for some time--unless we are prepared to take further, decisive action.


The worldwide recession that was raging just as the hardcover edition of this book was published in February 2009 seems to many observers, as of this writing in October 2009, to be coming to an abrupt end. There are definite signs of improvement. These observers could be right. Maybe this is just another recession that will eventually be forgotten among the annals of business-cycle history. But the theory that we lay out in this book gives us cause to worry that we may be in a sick economy over much of the world for years to come. Even the stirring success stories of the past decade or so in the developing world, notably China and India, may see their economic growth reduced to a disappointing level.

We think this because we have an unusual view of the economy, a view that animal spirits, as we define them in the Introduction, drive almost everything. Animal spirits are more than just confidence as measured by confidence indicators. We argue that declining animal spirits are the principal reason for the recent severe economic crisis. And, despite the recent positive economic indicators, we see no clear indication that these spirits are yet revived.

The news media are singularly lacking in any explanation for the recent resurgence of the world economy beyond the improvement in leading indicators, such as stock market prices and retail sales numbers. the reasons the leading indicators have improved remain mysterious. the stimulus packages put in place by most countries do not seem to have been big enough to be held responsible. By many popular accounts, the nascent recovery merely reflects a new willingness to spend all over the world, as if that is a primordial force of the economy that defies any further analysis.

There seems, to a reader of these accounts, to be an unseen force propelling the economy, driving it into its periodic booms and busts. But this perception is nothing new. in his 1873 book Lombard Street, Walter Bagehot said that it seems that in an economic recovery business “leaps forward as if by magic”:

Most people who begin to think of the subject are puzzled… Why
should there be any great tides of industry, with large diffused profit
by way of flow, and large diffused want of profit by way of ebb? the . . .

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