What is it: Animal Spirits is a book by a couple of professors which shows that the belief that “free market capitalism is essentially efficient and stable” is based on the (bad) assumption that people always act rationally and in pursuit of their own economic interests. In fact, people are moved by what Keynes called “Animal Spirits”, including over- (or lack of) confidence, varying attitudes towards fairness, temptations to corruption, and confusion (incomplete or inaccurate information).
Why is it cool: After the Great Depression, world governments sought to regulate financial markets heavily. After 50 years of stability, they were convinced to remove those regulations, bit by bit. After only 25 years of regulatory erosion, we wound up with today’s economic crisis. As the world struggles to get out of this mess, they will begin looking to what happens after: can we (should we) return to the stricter regulatory standards of the mid-20th century?
As these professors show, human nature includes animal spirits, and regulations can help protect us from the vagaries of ourselves. Let’s hope the world’s government leaders also see the sense of last century’s stability.
Where to find it: here!
Submitted by: John Cucka
