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Preface

Animal Spirits: Human Nature and the Economy George A. Akerlof The European Colloquia Venice November 25, 2008. Preface. Robert Shiller. Brief history of economic thought. Watered down General Theory . Vulnerable to attack. Introduction. Need for fundamental reorientation.

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Preface

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  1. Animal Spirits:Human Nature and the EconomyGeorge A. AkerlofThe European ColloquiaVeniceNovember 25, 2008

  2. Preface • Robert Shiller. • Brief history of economic thought. • Watered down General Theory. • Vulnerable to attack.

  3. Introduction • Need for fundamental reorientation. • The Invisible Hand. • Does well by criterion of school boy.

  4. Animal Spirits • Confidence. • Fairness. • Corruption. • Money Illusion. • Stories.

  5. The Eight Questions • Why Do Economies Fall into Depression? • Why Are there People who Cannot Find a Job?

  6. Eight Questions (Continued) • Why Do Central Bankers Have Power over the Economy, If They Do? • Why Is There a Tradeoff between Inflation and Unemployment in the Long Run?

  7. Eight Questions (Continued) • Why Is Saving for the Future So Variable? • Why Do Financial Markets Boom and Crash?

  8. Eight Questions (Continued) • Why Do Real Estate Markets Go through Cycles? • Why Does Poverty Persist among Disadvantaged Minorities?

  9. Confidence • Not just a prediction. • Also involves Trust. • Different from Standard Economic Theory of Decisions.

  10. Usual Meaning of Confidence • Confidence: • Trust. • Faith. • Different from Standard Economic Theory of Decisions.

  11. Fairness • Important in wage and price determination.

  12. Snake Oil • Capitalism does not: • Produce what people want: (up to the constraints of Pareto optimality).

  13. Snake Oil (continued) • Capitalism produces what people think they want: (up to the constraints of Pareto optimality).

  14. Money Illusion • Important determinant of working of the economy.

  15. Stories • Business cycles and stories. • Dot.com Bubble.

  16. Mexico: Late 1970’s-early 1980’s. • Lopez Portillo. • Quetzalcoatl [Pronounced: ketsal-ko-a-tl] • Oil. • Boom and bust.

  17. Summary • Confidence. • Fairness. • Snake Oil. • Money Illusion. • Stories.

  18. Why Do Economies Fall into Recessions? • Cycles in psychology. • Current crisis: • Confidence, Snake Oil, and Stories.

  19. Why Does Fed Have Effect: Insofar as It Does? • Open market Operations. • Discount window.

  20. Four Lines of Defense: • Regulation. • Rediscounting. • Deposit Guarantees. • Bankruptcy Management . • Shadow Banking: • No lines of Defense. • Shadow Banking: • No lines of defense.

  21. Current Crisis • Credit crunch. • Humpty Dumpty. • Target for full employment level of demand. • Target for full employment level of credit.

  22. Why Do We Need Such Targets? • Needed for planning. • Needed for legitimacy.

  23. Further Questions of Book • Why Are there People who Cannot Find a Job? • Why Is there a Tradeoff between Inflation and Unemployment in the Long Run? • Why Is Saving for the Future So Arbitrary?

  24. Why Are Financial Prices and Corporate Investments So Volatile? • Why Do Real Estate Markets Go through Cycles? • Why Is There Special Poverty Among Minorities?

  25. Conclusion • How the Economy Works: • Role of animal spirits. • Good parent role of government: • The Happy Household.

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