My latest column for Builder & Developer magazine is now online. For August, I discussed my book review of the Robert Shiller book "Animal Spirits" as well as my follow-up interview with him on BlogTalkRadio.com.
An excerpt:
It seems that there’s just nothing better than an old-fashioned boom-and-bust cycle in the housing market to reveal what economist John Maynard Keynes dubbed ‘animal spirits’ in the middle of the Great Depression.
Harnessed appropriately, it fuels the ‘naïve optimism’ that builders and developers require to place risky bets on new developments, when a constant barrage of economic externalities can derail even the best-laid plans.
But when these spirits turn dark – as they have in this ‘Great Recession,’ aggregate human psychology can prevent lenders from lending, consumers from spending and homebuyers from venturing into sales offices far beyond what traditional economics alone would dictate.
It is precisely this type of phenomenon that economists Robert Shiller (the Yale University professor and co-founder of the S&P/Case-Shiller Index) and Nobel Laureate George Akerlof (a professor at UC Berkley), discuss in their recent book, “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”
Having recently read this book to review for the Inman News service, I also thought its lessons were appropriate for the building industry, given that it was housing which sparked the economic maelstrom in which we still find ourselves. As an adjunct to the review, I was also able to interview Dr. Shiller for a new show I’m hosting on BlogTalkRadio.com, The Housing Chronicles.
A primary thesis of the book is the failure of macro-economic theory over the past generation to properly account for these animal spirits, which can be subdivided into confidence, fairness, corrupt/anti-social behavior, the illusion of how money really works, and the stories that people and societies tell themselves to explain their place in the world.
Somewhat like the 2005 book “Freakonomics,” the authors then apply these theories to questions ranging from why countries fall into depressions to why real estate markets seem to always go through cycles.
Click here for entire column.
Monday, August 17, 2009
Latest column for Builder & Developer magazine now online
Wednesday, July 22, 2009
Taming those 'animal spirits' for a housing rebound
It seems that there’s just nothing better than an old-fashioned boom-and-bust cycle in the housing market to reveal what economist John Maynard Keynes dubbed ‘animal spirits’ in the middle of the Great Depression. Harnessed appropriately, it fuels the ‘naïve optimism’ that builders and developers require to place risky bets on new developments, when a constant barrage of economic externalities can derail even the best-laid plans.
But when these spirits turn dark – as they have in this ‘Great Recession,’ aggregate human psychology can prevent lenders from lending, consumers from spending and homebuyers from venturing into sales offices far beyond what traditional economics alone would dictate.
It is precisely this type of phenomenon that economists Robert Shiller (the Yale University professor and co-founder of the S&P/Case-Shiller Index) and Nobel Laureate George Akerlof (a professor at UC Berkeley), discuss in their recent book, “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”
Having recently read this book to review for the Inman News service, I also thought its lessons were appropriate for the building industry, given that it was housing which sparked the economic maelstrom in which we still find ourselves. As an adjunct to the review, I was also able to interview Dr. Shiller for a new show I’m hosting on BlogTalkRadio.com, The Housing Chronicles.
A primary thesis of the book is the failure of macro-economic theory over the past generation to properly account for these animal spirits, which can be subdivided into confidence, fairness, corrupt/anti-social behavior, the illusion of how money really works, and the stories that people and societies tell themselves to explain their place in the world. Somewhat like the 2005 book “Freakonomics,” the authors then apply these theories to questions ranging from why countries fall into depressions to why real estate markets seem to always go through cycles.
So what’s the solution to prevent these spirits from again running amuk? For starters – and jump-started by the combination of a newly liberal White House and a somewhat compliant Congress – the authors think we’re on the precipice of a major shift in macro-economic policy. Instead of the hands-off approach which catapulted Ronald Reagan to the Presidency more than a generation ago, tomorrow’s economy will involve a lot more regulation.
Yet in order to prevent this regulation from stomping out the entrepreneurial energy which will lead to a rebound, Shiller and Akerlof also suggest that both individuals and government will have to learn how the economy truly works, and then apply that knowledge to such vexing questions as investing in stocks or real estate, the practical administration of Social Security or healthcare, and how to balance financial goals against life’s many other decisions.
For builders and developers, this shift could also provide a great opportunity to revive or initiate seminars (or Internet-based webinars) on money management, how to appropriately budget for a homebuying purchase, and how to ignore those animal spirits which arise from short- or medium-term changes in the market in pursuit of a longer-term goal: that of paying off a house in which to live.
Monday, July 13, 2009
My review of "Animal Spirits" now online
Recently, I had the opportunity to interview Dr. Robert Shiller, the Yale University professor and co-author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," which is now online at BlogTalkRadio. You can also access that interview by clicking on the BlogTalkRadio player on the right hand margin of this blog.
That review was published today by Inman News, which can find by clicking here. An excerpt:
Ever wonder why a seemingly slam-dunk deal suddenly gets thrown off the rails even though none of the terms have changed?
Perhaps you should blame "animal spirits" gone awry, a term economist John Maynard Keynes coined in the middle of the Great Depression to describe the type of "naive optimism" that is a necessary ingredient for businesses to invest, for entrepreneurs to take risks -- and for potential homebuyers to sign those documents at the closing table.
Left to their own devices, however, these same spirits can fall dramatically, thus becoming a psychological barrier to a properly functioning economy.
In their recent book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," economists George A. Akerlof, a Nobel laureate and professor from University of California, Berkeley, and Robert J. Shiller, co-creator of the Standard & Poor's/Case-Shiller Index for home prices and a professor at Yale University, spent over five years researching, dissecting and explaining the importance of these animal spirits in the global economy.
It is their conclusion that longstanding theories of "rational expectations" and "efficient markets" are so flawed on their own that any credible economic models must take into account these spirits to avoid future catastrophes.
Wednesday, July 1, 2009
Interview with Robert Shiller now online at BlogTalkRadio
My interview with Robert Shiller, author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" is now online at BlogTalkRadio. You can also listen to the interview by clicking on the widget on the right hand margin of this blog.
This interview will be accompanying my upcoming review of the book for the syndicated news service Inman News.
Tuesday, June 30, 2009
Interview tomorrow with Robert Shiller, co-author of "Animal Spirits"
On Wed., July 1st at noon (Pacific time, 3pm Eastern time) I managed to snag an interview with Robert Shiller, Princeton University professor, co-founder of the S&P/Case-Shiller index and co-author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism" for my Housing Chronicles show on BlogTalkRadio.com.
You can either listen to the first 15 minutes streamed live or listen to the podcast afterwards (I'll post a link). I'll be citing this interview for my upcoming review of the book for Inman News.
Tuesday, June 23, 2009
Next book review: "Animal Spirits"
For my next book review for Inman News, I selected the book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" by economists George Akerlof and Robert Shiller.
The reason I chose it was because few markets are more prone to human psychology than residential real estate, so I was hopeful that the book would provide some tools to real estate agents to educate potential buyers when deciding to enter into a deal.
I'm also trying -- so far unsuccessfully -- to grab 15 minutes of Dr. Shiller's time for a brief, 15-minute interview for my HousingChronicles show on BlogTalkRadio (and also to help with my review). Since I've interviewed the authors of nearly every book I've reviewed for Inman News and the L.A. Times -- including other noted economists such as Richard Florida and Mark Zandi, who regularly testifies in front of Congress -- I was thinking Dr. Shiller would be willing to do the same.
However, since the PR rep for his publisher is having zero luck scheduling this interview, if any readers of this blog have any sway with Dr. Shiller, you'd have my gratitude to intervene. While the lack of an interview certainly won't stop me from writing the review, I'd find it much easier to tie it directly to the Inman News audience with a few specific questions. After all, this isn't the type of book to which your average real estate agent would gravitate, so I had to talk my editor into letting me review it in the first place.
According to Amazon.com, here's a description of the book:
The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity.
Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.
Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits--the powerful forces of human psychology that are afoot in the world economy today.
Keynesianism, Reaganomics and Thatcherism? I can't wait!Can't wait for the interview? Buy the book at Amazon.com (now only $9.99), or click on the widget below:
