in the middle of the night

Where have all the ‘animal spirits’ gone?

John Maynard Keynes briefly used the term in one paragraph when discussing what motivates people to invest and speculate.

In a new book, Animal Spirits, George Akerlof and Robert Shiller describe five categories of spirit:

1. Confidence
2. Fairness
3. Corruption / bad faith
4. Money illusion
5. Stories

None of these are easily quantified which may explain why economists and bureaucrats who just focus on the numbers so often miss the mark.

People are first led by stories about the successes of others and the possibilities for good in the world. Their eyes often glaze over when you start spouting numbers; stories they get.

The stories build confidence that they too might achieve some modicum of success assuming that:

1. the rules of the game are fair,
2. the bad guys will be kept in check and that
3. the government will maintain a stable currency – not too much inflation and not too much deflation, but just right.

The return of ‘animal spirits’ will take some time.