Animal Spirits - What are they?

In my recent post on Hope, I made a suggestion to what "John Maynard Keynes" may have have meant by "Animal Spirits of Business People" when he first coined it way back.


Today, driving to work , I was listening to MarketPlace Morning Report on NPR. Guess what the subject was - A new book titled "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism" by Dr. George Akerlof and Dr. Robert Shiller.


The link to the report : http://marketplace.publicradio.org/display/web/2009/03/24/am_animal_spirits/


Though, I have not read the book, from what I heard on NPR today, I felt they were kind of saying the same thing I said in my blog and that is:-"Hope in GOOD TIMES combined with uncertainty and availability of good imagery that is easily accessible leads to “Irrational Exuberance” whereas in BAD TIMES the same hope, combined with uncertainty and availability of bad imagery that is easily accessible leads to “Irrational Pessimism” and staying on sidelines in the hope of an even better opportunity." So Government should respond differently based on the situation. In good times it should respond with more scrutiny and in bad times it should respond with real support. However the Authors contend though the government is on the right track, the real support offered so far (greater than 1 trillion) is not big enough.


My take: I concur with all of what was said by the authors on market place except on the comment that the real support was not big enough. I am not sure the current issue is the size of the real support, my gut tells me that it is ambiguity around the support that is causing the issue and may eventually render the size of the support smaller than needed. So for e.g yesterday when a plan was put forward on how to deal with Toxic Assets, it produced some certainity, thereby a positive response and Hope. Hence, In my opinion, What we need at this time is "CERTANITY" more than anything else. The certainity will then lead to real expectation of the need/support needed that can be offered by government/private or a combination of both.

Happy listening and reading.

Thanks
Nagesh
Note: The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.