Animal Spirits in a Civil Society

 

To what extent can the role of the government and civil society regulate harmful human behaviors? To what degree should the rules governing civil society acknowledge and correct these behaviors?

Governed as we are economically by a capitalist market, Akerloff and Shiller makes the argument in Animal Spirits that in fact, even behaviors within the economic system can be explained by innately human reactions to ambiguity.

Take, for example, the idea of stories as self-manifesting. Akerloff and Shiller maintain that “[t]he confidence of a nation, or of any large group, tends to revolve around stories” and that “[confidence] is a view of other people’s confidence, and of other people’s perceptions of other people’s confidence.” This self-seeding behavioral norm seems like a plausible explanation for the trends in filing financial misstatements, where the rampant practice of cooking accounting books appears to be related to the degree of confidence that the regulations against this conduct are being enforced.

What will it take to tame the effects of our animal spirits at a larger scale? If it is indeed our innate human psychological behaviors that drive our actions, then it is problematic that regulations can’t account for this behavior if they are not a) designed in consideration of human behavioral tendencies, b) consistently regulated and/or c) enforceable. It is the effect of problematic regulations and implementation that compromises the idea of a just society regulating a free market.

 

 

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