Animal Spirits
And the Economic Outlook
Robert J. Shiller
Arthur M. Okun Professor of Economics
Yale University
London School of Economics, 20 May, 2009
Ed Koren cover for Akerlof-Shiller Animal Spirits, Princeton, 2009
From R. Shiller Irrational Exuberance,
2nd Edition, Spring 2005
• “Significant further rises in these markets could lead,
eventually, to even more significant declines. The bad
outcome could be that eventual declines would
result in a substantial increase in the rate of personal
bankruptcies, which could lead to a secondary string
of bankruptcies of financial institutions as well.
Another long-run consequence could be a decline in
consumer and business confidence, and another,
possibly worldwide, recession.”
US Real GDP and Residential Investment
Quarterly 1947-I to 2009-I
100000
1000
10000
100
GDP
Res. Invest
1000
100
1940
1960
1980
2000
10
2020
UK Real GDP and Construction
Quarterly 1958-I to 2009-I1
Real GDP
Construction
30
1950
1960
1970
1980
1990
2000
2010
2020
US Unemployment Rate
Annual 1890-1947
Monthly Jan 1948-April 2009
25
20
15
10
5
0
1880
1900
1920
1940
1960
1980
2000
2020
UK and US Unemployment Rate,
Jan 1971-March-April 2009
14
12
10
8
UK
6
US
4
2
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
X4 on Michigan Consumer
Sentiment Survey 1951-2009
• x4: "Looking ahead, which would you say is
more likely--that in the country as a whole
we'll have continuous good times during the
next five years or so, or that we will have
periods of widespread unemployment or
depression, or what?"
Depression Confidence (Tabulating
Michigan Question X4 1951-2009)
x4 US Depression Confidence Feb 1951-May 2009
160
140
May 1956
March 1991
120
May 2009
100
80
60
Feb 1974
40
1950
1960
1970
June 2008
1980 March
July 1979
20
0
1940
Oct 1990
1980
1990
2000
2010
2020
2000
450
Real S&P Composite Earnings
Real S&P 500 Stock Price Index
Real S&P Composite Stock Price Index and Real Earnings,
Monthly, Jan 1871 to May 15, 2009
400
1500
350
300
Price
1000
250
Since
2000
Peak
-52%
500
-500
150
100
0
1870
200
1890
1910
1930
1950
1970
Earnings 2010
1990
50
0
Real (S&P Composite) Price Divided by 10-Year Average Real
Earnings, Monthly, Jan 1871 to May 15, 2009
50
20
2000
45
40
16
1981
14
1929
30
25
12
Price-Earnings Ratio
1901
10
1966
20
8
15
15.24
1921
10
5
0
1860
Long-Term Interest Rates
35
Price-Earnings Ratio
18
6
4
2
Long-Term Interest Rates
1880
1900
1920
1940
Year
1960
1980
2000
0
2020
Real FTSE 100 and Real S&P 500
Compared Jan 1987-May 15, 2009
10000
2000
9000
1800
8000
1600
7000
1400
6000
1200
5000
1000
FTSE 100
4000
800
S&P 500
3000
600
2000
400
1000
200
0
1985
1990
1995
2000
2005
2010
0
2015
Real House Prices – Greater London (Halifax),
Los Angeles (S&P/Case-Shiller) through 2009-I
400
Real Price Index
350
300
250
Gr. London
200
150
Los Angeles
100
50
0
1980
1985
1990
1995
2000
Date
2005
2010
2015
Los Angeles: Real (Inflation-Corrected) S&P/Case-Shiller Price
Indices for Low-, Middle- and High-Priced Homes,
Monthly Jan 1987-Feb 2009 (1987=100)
350
300
250
200
Low
Middle
150
High
100
50
0
1985
1990
1995
2000
2005
2010
2015
250
US Home Prices 1890 to 2008 Q4
With Annual Building Costs,
Population, Ten-Year Treasury Yield
1000
900
800
700
150
600
Home Prices
500
100
400
300
Building Costs
Population
50
200
Interest Rates
0
1880
1900
1920
1940
1960
Year
15
1980
2000
100
0
2020
Population in Millions
Index or Interest Rate
200