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Originally Posted by mavdog
there is a popular theory of decisionmaking that places fear as the primary thought behind how individuals respond to situations.
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I'm afraid you're still lacking a bit in your understanding of Keynes/Schiller's
animal spirits explanation for business cycles, for if you did you would not bother citing a theory about how people
respond to situations. Telling me that people routinely respond out of fear to situations tells me nothing about what causes a situation to change in the first place....
Even though every Keynesian's answer for how to address a recession is to spend more, Keynesians obviously cannot say that recessions are caused by reductions in spending because recessions are by definition reductions in spending. This would be to say that recessions are caused by recessions, which is of course a useless explanation for why recessions happen...
so....the Keynesians need a causal explanation for recessions, hence....
Keynesians say recessions happen because the animal spirits go from being happy to sad--fear, confidence, trust etc. are not
responses to changes in the economy, but rather changes in animals spirits cause the economy to go from bust to boom and back again to bust.
As stupid as the animal spirit explanation sounds, and it is very stupid, it is not quite as stupid as most marxist explanations for why recessions happen (ie, recessions happen because capitalism is so productive that people can't consume stuff fast enough)...
...but I digress.
Granted....modern keynesians are a bit more careful about bringing out the animal spirits, but sometimes they slip...and it's funny when they do.
anyhoo....an interesting contrast and comparison is Rothbard's Austrian explanation of the business cycle theory as presented in
America's Great Depression. I highly ecommend Part I of the book to anyone interested, it's available free on line. What makes it interesting is that he uses economics to explain why cycles happen rather than invoking animal spirits like a stone age shaman.