You know we're in trouble when the greatest economists agree that the solution to the current financial crisis involves: "animal spirits."
These thinkers activated their sky-high IQs, crunched the data, applied some analysis, and seemed to suggest that we really need... a shaman. Who would be more qualified to channel our animal spirits?
The eminent Yale economist Robert Shiller write this week in the Wall Street Journal that we need even more fiscal stimulus than the president has proposed because that is the only way to awaken what John Maynard Keynes famously called our "animal spirits." Link here.
To which Harvard economist Gregory Mankiw replied: "The sad truth is that we economists don't know very much about what drives the animal spirits of economic participants. Until we figure it out, it is best to be suspicious of any policy whose benefits are supposed to work through the amorphous channel of 'confidence.'" Link here.
Dare I remark here that even if economists do not know what drives people to act, other professionals-- managers, leaders, and coaches-- do know something about the topic.
Be that as it may, I would recommend that these economists would do well to indulge some straight thought. After all, invoking animal spirits here just feels like a cop out. Are these great thinkers telling us that we need to go out and find our totem? Perhaps a little conceptual rigor would do them well.
I doubt that they are going to be able to think us out of the current morass with a lame concept like "animal spirits."
To be fair, Keynes defined the concept, thusly: "human decisions affecting the future... cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist... it is our innate urge to activity that makes the wheel go round."
So, "animal spirits" is shorthand for an innate, seemingly irrational, urge to act. Keynes is suggesting that since we cannot make a strict calculation about the future, we act on impulse and instinct, more than on reason.
Think about this concept and it begins to feel like a pagan version of a leap of faith.
And the concept fails for being too general. What kind of animal are we talking about, specifically? Does Keynes want us to get in touch with our inner rat-ness or our innate snakehood. Has he considered that when bears hibernate they are evincing an innate urge toward inactivity.
Usually, when the term "animal" is applied this generally to a human being, it is derogatory and demeaning. If you telling someone that he is acting like an animal you are not paying him a compliment.
Could it be that economists evoke "animal spirits" to describe human behavior that does not fit their models and to slander the humans who do not act as the economists think they should?
Another problem is simple enough. What makes you think that these urges to activity are beyond calculation and even reason. Don't people calculate risk and probability to decide on future actions?
Does anyone really believe that animals are driven by irrational impulses? When a hungry lioness chases a gazelle, she is impelled by a perfectly intelligible motive. We do not know her analysis of risk and reward, but her behavior can certainly be understood within such parameters.
In truth, a human being is far more likely to have an irrational attitude toward nutrition than any other member of the animal kingdom.
But now, what are we to make of Robert Shiller, author of a forthcoming book on "animal spirits," when he takes the concept of an "innate urge to activity" and transforms it into concepts of trust and confidence?
According to Shiller, waning animal spirits cause a loss of "consumer trust and confidence." We have also lost a sense of trust in each other and our sense of fairness.
Whatever does that have to do with animal spirits? Perhaps you trust your dog-- I hope you do-- but you would certainly not trust a hyena. The next time you encounter a bear in the woods you will probably not be thinking about confidence-building measures.
Or, imagine a band of vultures congregating around a water buffalo carcass. The carcass is being torn apart by a pride or lions or a troop of hyenas, and the vultures are waiting their turn. Are they doing so because they trust the larger predators to leave them some table scraps?
Surely, we need to restore trust and confidence in our financial system. We need to restore trust and confidence in our government too. But have the smartest economists in the world really helped us out when they say that it is all a matter of mobilizing our animal spirits?
Perhaps if they adopted a more coherent concept they would have a better grasp on what makes people behave and misbehave.
If they insist on being Keynsians, they should at least acknowledge that this is the Year of the Ox. Can you think of an animal less known, in Keynes's words, for "a spontaneous urge to action rather than inaction?"