Reviving the Animal Spirits

The world’s fundamental economic problem today is a staggering loss of business confidence - a weakening of what Keynes called the "animal spirits." One reason is that people know enough about the Great Depression to understand that, unlike previous economic convulsions, there are parallels with today.

NEW HAVEN – The world’s fundamental economic problem today is a staggering loss of business confidence. Commercial banks, investment banks, and hedge funds all owe their ongoing trouble to its decline, which in turn is jeopardizing the plans of companies and entrepreneurs to launch enterprises and make investments, and of households to consume.

Our “animal spirits,” to borrow a phrase made famous by John Maynard Keynes, are weakening. George Akerlof and I have just written a book by the same name, but by the time Animal Spirits appears later this winter, the world economy may be even worse than it is now.

Nations everywhere are starting to implement aggressive stimulus and bailout packages. Yet the economic outlook still looks grim. The International Monetary Fund’s latest forecast predicts that the world’s advanced economies will contract 0.3% in 2009 – the first such shrinkage since the end of World War II.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/uaRUt6m;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.