Saturday, April 4, 2009

Emotions key to economic recovery


President Obama's National Economic Council head Lawrence Summers noted in his speech March 13 that the economic crisis has led to an "excess of fear" that must be reversed.

To understand the role fear plays in the current crisis, we must understand the role of human psychology.

John Maynard Keynes thought psychology was the major cause of economic booms as well as busts, though this aspect of his work is now largely forgotten. He said people's economic decisions, in both good times and bad times, are largely, ultimately, if indirectly, driven by animal spirits, primitive psychological tendencies.
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