I rather think that we need to be constantly mindful of the need to minimize the scope or extent of the harm, rather than prevent it. And in doing so — the argument would go — we do the best to promote good outcomes.

To boil it all down to status competition is a big mistake. I think it comes from the intersection of neo-Social-Darwinism (the strain of evo psych that emphasizes aggression and dominance to the point of celebrating it) and the academic mindset, which is big on fame and status. But the neo-Social-Darwinists are wrong, and not everyone is an academic. Basically, humans are complicated, and simple explanations for what they do are wrong.

“The Selfish Gene” by Dawkins was a life changing book for me. Why are people altruistic? Why are they suicidal?

This “animal spirits” mumbo jumbo just sounds like a sophomoric almost spiritually based understanding of why people appear to act irrationally.

Any real data that the sorts of tax structures Frank and Cook advocate (if they advocate any particular structure) would significantly endanger entrepreneurial risk-taking? I'm pretty sure my animal spirits would persevere were I to be taxed at (say) 50% at the $500K margin. So too, apparently, does Bill Gates.

I think that is only a first-order reading of animal spirit implications. In fact, it might be a little higher order to roll back and look at the role of boosterism in bubble building. A good news bias only builds bubbles higher (and more often).

I think the best answer is tell me the real news, just as soon as you can. Tell us early and let us develop skills of healthy moderation and skepticism, to prevent the extremes of public sentiment from leading us to euphorias or panics.

Not falling into the naturalistic error there, Will? Proceeding from what is the case (Hume's writing) to what 'ought' to be the case (your preferred conclusions)?

Although you've not enlightened me as to my misunderstanding, I remain puzzled why you would privilege the experiential psychology of Hume's day over modern experimental psychology. Thaler seems to me to explain much more than Hume.

Here's another razor distinction. Hume's enlightenment view of human behavior includes no consideration of the systematic capacity human beings have for error and self-delusion. Hume – your quote, and I assume you understand him – argued “that institutional rules and social norms must align ambitious, emulative, and status-seeking animal spirits to the aims of innovation, refinement, and advancement of the public good.”

A modern view of that would be that that is all very well and good, but it ignores the fact that human beings are systematically error prone. We delude ourselves. We fail tests of reason and perception all the time. We have had sets of institutional rules and social norms that were intended to direct us along the paths you suggest. These systems failed.

Modern psychologists would argue that it's not that carelessness and greed became contagious. In fact, they're not aberrations. A modern psychologist might even argue that carelessness and greed are precisely the things you (Will) roughly describe as 'animal spirits'. They're chaotic. Unguided. Cthonic. And they appear to be systematic (indeed, predictable) features of the human mind.

If you want me to go all pop on you, recall Warren Buffet's advice to only ever invest in a business an idiot could run, because one day, an idiot will. If we embrace human fallibility in ways Hume overlooks, we build social systems with human weakness uppermost in our mind. We build systems where no part of it can become so important that, should human self-deception lead to the collapse of one part, the overall system is impacted.

Which is a radical departure from Hume's advice, and follows from enormous improvements in our understanding of minds.

Theoretically, the capitalists wouldn't have destroyed our economy with their stupidity and unchecked greed.

Even Randroid Greenspan was surprised.

What use is “a theoretically sound position” when it has no value in the real world?

Separating the liberaltarian project of intellectual coalition-formation and identity-questioning from partisan politics is really hard. But it can and ought to be done. You're totally right here!

Separating discussions of macro-economic theory and policy from partisan politics, while using the events of the political process and the comments of the wonkosphere in response to those events as jumping-off points, in January-February of 2009, is not possible. Questions about illocutionary force rather than content are not merely predictable but proper.