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March 15, 2009

Economist's View - 3 new articles

Bernanke on 60 Minutes

[Ben Bernanke's Greatest Challenge]

Animal Spirits

Some history of the phrase "animal spirits":

...Needed now, say today's contrarians, is an infusion of animal spirits. In a New York Times Op-Ed a few weeks ago ... Robert Shiller, the author with his fellow economist George Akerlof of a new book, ''Animal Spirits,'' which carries a depressingly lengthy subtitle about psychology, noted that... ''The attention paid to the Depression story ... is a cause of the current situation — because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our 'animal spirits,' reducing consumers' willingness to spend and businesses' willingness to hire and expand. The Depression narrative could easily wind up as a self-fulfilling prophecy.''

Keynes was surely the popularizer of the phrase in his 1936 book ''The General Theory of Employment, Interest and Money.'' He held that economic instability..., often the result of speculation, was also caused partly by ''spontaneous optimism rather than mathematical expectations. Most, probably, of our decisions to do something positive can only be taken as the result of animal spirits — a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.''

In that passage, he was warning about overconfidence; in another, he encouraged risk-taking: ''If the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die.'' I like that one more.

The phrase that Keynes made famous in economics has a long history. ''Physitions teache that there ben thre kindes of spirites,'' wrote Bartholomew Traheron in his 1543 translation of a text on surgery, ''animal, vital, and naturall. The animal spirite hath his seate in the brayne called animal, bycause it is the first instrument of the soule, which the Latins call animam.''

Novelists seized the expression's upbeat sense with enthusiasm. Daniel Defoe, in ''Robinson Crusoe'': ''That the surprise may not drive the Animal Spirits from the Heart.'' Jane Austen used it to mean ''ebullience'' in ''Pride and Prejudice'': ''She had high animal spirits.'' Benjamin Disraeli, a novelist in 1844, used it in that sense: ''He had great animal spirits, and a keen sense of enjoyment.'' Feel better?...

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