Animal Spirits Book Review

 

Animal Spirits,

Why Psychology matters in Macroeconomics

Today I finished the book “Animal Spirits” written by George Akerlof (hey, Berkeley faculty) and Robert Shiller. I will go through a quick summary followed by my thoughts on the book as a whole

Summary

The premise of the book is quite simple: macroeconomic theory is based on a set of obtuse assumptions, thus lessening the validity of such a theory. Shiller and Akerlof use data and anecdotes to originate a new set of driving forces for economies today, the titular ‘animal spirits’ first referenced by John Meynard Keynes. They breakdown animal spirits into the following five categories which, when analyzed in sum with macroeconomic theory provide a framework for thinking about macroeconomics

1.       Confidence: recessions are in large part due to a los of consumer and business confidence which decreases spending and output. The reverse also holds true

2.       Corruption: economic downturns can almost always be explained in part by corruption at a federal level and shirking of legalities

3.       Fairness: A sense of fairness underlies all economic negotiations and drives the microeconomic transaction which in turn make up macroeconomic trends

4.       Stories: Narratives play a large part in driving behavior as people are swayed by compelling stories even when confronted with facts

5.       Money illusion: the nominal value of money is psychologically used rather than the real value of money. This coupled with loss aversion is a powerful tool that underpins most wage arguments

Review

The book was short, but I still could not read it intensely all the way through. The book was broken into two parts, one to explan the above five forces and the other to answer various questions about macroeconomics using the framework they laid out. The issue lies in the binary nature of complex economic thoughts interspersed with overly obvious conclusions drawn from the above five principles. The framework laid out by Shiller and Akerlof is extremely compelling, but their application of the principles fell short of what I was expecting.

Overall, what I took away from the book were the five principles. They can be used to analyzed most major news stories and I find it interesting to use their framework in everyday life to see life through a different perspective. If you enjoy macroeconomics and long discussions about wages, unemployment, inflation, and recessions, I suggest you read the book as it does delve deep into the development and validation of their theory. I also suspect macroeconomists enjoyed their application of theory more than I did.

Comments

Post a Comment

Popular posts from this blog

TransMedics (Nasdaq:TMDX), A catalyst upcoming

Image
Summary: Transmedics is the maker of organ preservation systems to extend the life of organs for transplants. Organ transplantation has suffered with low usage rates due to a lack of effective preservation techniques, but Transmedics' organ care system solves this issue and effectively expands the market for organs. With an upcoming FDA panel for their OCS heart system on October 7, I believe the stock is undervalued at current levels and has a positive catalyst coming soon. Product The current standard of care for organ transportation cold storage, effectively a cooler for organs. Under this method, only 2-3 organs thoracic organs are used out of every 10 donated and there is a 30-35% post-transplant complication rate. Their organ care system (OCS) has shown a significant increase in organ utilization to ~8/10 organs and an improvement in the post-transplant complication rate to 14%(source: company presentation). While typically organs are thrown into a cooler, TMDX used warm perf...
Read more

Myomo Thesis(MYO)

Image
Since substack is all the rage now, the I post all of my DDs on there as well. I like the ease of use of the platform as well.  Myomo is a medical device company that sells an assistive device for those with reduced strength in their arms. The device uses the impulses generated by a persons brain and amplifies them to strengthen movements. The target population are a specific set of patients with chronic arm paralysis (basically you have trouble using your arm) such as stroke survivors, spinal cord injuries, Brachial plexus injuries and other various conditions. Market:  Management sizes the total market opportunity at 3M people with chronic arm paralysis in the USA and 1% of the global population growing at 250k each year. Not all of these patients will get a Myomo device, but there is still a large and growing unmet medical need Industry:  Myomo has no direct competitors, but there are two other companies focused on augmenting human movement: Ekso Bionics (EKSO) and Rew...
Read more