Thursday, December 23, 2010

Animal Spirits Pt. 4: Conclusion

Having finished this book, I can say I do like what I've read. Certainly I don't agree with every conclusion they've reached, nor do I agree with every analysis. But their approach is certainly more valid than the approach made by even the standard economics stories I'm familiar with. In a way, by acknowledging the fact that individual and cultural variations make most dry quantitative approaches to economic study less than helpful, their approach has more in common with the approach promoted by Ludwig Von Mises than that of those labeled Kensian and Monetarist.

That's not to say they are the same. Where Mises described a discipline that stuck to exploring the structure of logic that can be built upon certain basic, knowable facts (including the fact that human motivations are infinite and complex), Akerlof and Shiller explore the impact of specific psychological and cultural information on economic analysis. Indeed, were one to engage in a multidisciplinary approach that deliberately combined Misesian praxeology with psychology and cultural studies, it would likely look something like this (assuming the reader can accept that "Misesian" and "Rothbardian" are not necessarily the same, and that two people can attempt the same approach and, thanks to the role "understanding" plays in the comprehension of complex phenomena, can come to different conclusions). I can only hope their ideas have some effect on the overall profession.

So this book is a starting point, though I suspect there is a hurdle the authors are not anticipating. They speak of the role of "animal spirits" (and yes, they are using the term in the fashion I had hoped when I wrote Part 1) in shaping the overall economic and driving economic events. They say government regulation is an appropriate remedy to the excesses that can be caused by these "animal spirits". The question then becomes: how do we get appropriate policy out of the government? For it is not only the overall economy in which "animal spirits" plays a role; it is also in politics, and administration, that human motivation plays an important role.

In other words, would would be the result of applying "animal spirits" theory to public choice theory? For the government isn't a machine that inputs information and outputs policy: it, too, is made up of human beings with diverse motives. It, too, suffers from the effects of a confidence cycle, corruption, notions of fairness that may or may not be good for the overall output, changing stories, and other things identified as "animal spirits." Any policy recommendation resulting from an analysis must take this into account as surely as the original analysis must.

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