I posted this on the Lew Rockwell blog earlier today, but want to post here as well. Lest anyone think that the “elite” economists have not gone mad, read the following from Robert J. Shiller of Yale University:
President Obama is urging Congress to pass an $825 billion stimulus package as soon as possible. But even that may not be enough to stabilize the economy, since it fails to take into account the downward spiral of animal spirits that is underway and may continue to worsen.
The term “animal spirits,” popularized by John Maynard Keynes in his 1936 book “The General Theory of Employment, Interest and Money,” is related to consumer or business confidence, but it means more than that. It refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people.
Fiscal policy adjustments are what almost all the pundits and the economic policy advisers have in mind when they say now is the time to pursue Keynesian policies. Especially now, when conventional monetary policy is ineffective, since short-term interest rates on safe assets are close to zero, Keynesian theory would argue that the government should have a fiscal target. If spending would otherwise be less than full employment GDP, the government should put more money into people’s pockets.
But lost in the economics textbooks, and all but lost in the thousands of pages of the technical economics literature, is this other message of Keynes regarding why the economy fluctuates as much as it does. Animal spirits offer an explanation for why we get into recessions in the first place — for why the economy fluctuates as it does. It also gives some hints regarding what we need to do now to get out of the current crisis.
I must admit that this one floors me. Now, here is an economist who loves to give us all of the latest in mathematical mumbo-jumbo in the “elite” journals, yet in the end, it is all about “animal spirits.” It is enough to make me want to partake of other spirits.