Maclean’s Interview: Robert Shiller

From Macleans.ca:

Robert Shiller is a professor of economics at Yale and the bestselling author of Irrational Exuberance, in which he predicted the collapse of the stock market. He was also one of the first economists to accurately foresee the devastation that would follow the subprime mortgage crisis. In Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism, written with George Akerlof, he argues that today’s markets are as much driven by human psychology as by finance. Shiller uses the idea of “animal spirits,” a term invented by revolutionary economist John Maynard Keynes, to describe the powerful effect of human emotion and confidence on the economy, and to push for more government intervention and bigger stimulus packages in the U.S. and Canada.

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Winning the Confidence Game

In the Business Standard:

Developed nations must invest in confidence-renewing measures like the Marshall Plan.

On April 2, the G-20 will hold a summit in London to discuss what we may hope will be an internationally coordinated plan to address the world economic crisis. But can such a plan really work?

The basic problem, of course, is confidence. People everywhere, consumers and investors alike, are cancelling spending plans, because the world economy seems very risky right now. The same thing happened during the Great Depression of the 1930s. A contemporary observer, Winthrop Case, explained it all in 1938: economic revival depended “on the willingness of individual and corporate buyers to make purchases that necessarily tie up their resources for a considerable length of time. For the individual, this implies confidence in the job, and in the end comes equally back to the confidence of industry leaders.” Unfortunately, confidence did not return until World War II ended the depression.

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