Animal Spirits George Akerlof Pdf Download __LINK__

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It is unfortunate that most economists and business writers apparently do not seem to appreciate this and thus often fall back on the most tortured and artificial interpretations of economic events. They assume that variations in individual feelings, impressions, and passions do not matter in the aggregate and that economic events are driven by inscrutable technical factors or erratic government action. In fact, the origins of these events are quite familiar and are found in our own everyday thinking, our animal spirits.*

The crisis was not foreseen, and is still not fully understood by the public, and also by many key decision makers, because there have been no principles in conventional economic theories regarding animals spirits. Conventional economic theories exclude the changing thought patterns and modes of doing business that bring on a crisis. They even exclude the loss of trust and confidence. They exclude

It is necessary to incorporate animal spirits into macroeconomic theory in order to know how the economy really works. In this respect the macroeconomics of the past thirty years has gone in the wrong direction. In their attempts to clean up macroeconomics and make it more scientific, the standard macroeconomists have imposed research structure and discipline by focusing on how the economy would behave if people had only economic motives and if they were also fully rational.

Yet we are currently not really in a crisis for capitalism. We must merely recognize that capitalism must live within certain rules. Indeed our whole view of the economy, with all of those animal spirits, indicates why the government must set those rules. It may be true that in the classical model there is full employment. But in our view the waves of optimism and pessimism cause large-scale changes in aggregate demand. When demand goes down, unemployment rises. It is the role of the government to mute those changes.

If we thought that people were totally rational, and that they acted almost entirely out of economic motives, we too would believe that government should play little role in the regulation of financial markets, and perhaps even in determining the level of aggregate demand. But on the contrary, all of those animal spirits tend to drive the economy sometimes one way and sometimes another. Without intervention by the government the economy will suffer massive swings in employment. And financial markets will, from time to time, fall into chaos.

It is our contention that the working of the economy, and the role of government in it, cannot be described solely by considering economic motives. Such description also requires detailed understandings of confidence, of fairness, of opportunities for corruption, of money illusion, and of stories that are handed to us by history. These are real motivations for real people. They are ubiquitous. The presumption of mainstream macroeconomics that they have no important role strikes us as absurd. The solutions to our economic problems can only be reached if we pay due respect in our thinking and in our policies to the animal spirits. 2b1af7f3a8