Friday, January 30, 2009

On Animal Spirits

When I was an undergrad student, I read some books related to Keynes and his theory and I met an impressive term, "animal spirits".

What is an animal spirit? It may be spirits that animals usually have. The character of such spirits may be irrational and sporadic.

I have been not sure what it is and felt that it is what has confused many economists for a long time.

Robert Shiller tells what it is in his terms : people's trust,

A critical aspect of animal spirits is trust, an emotional state that dismisses doubts about others.

Yes, I agree on it but what makes such trust? Nobody knows it for sure and maybe that's why some expansionary policies conducted in Japan during the late 1990s have been ineffective: Japanese government has been failed to make people trust each other by means of its policy.

From this perspective, expansionary policy should be conducted in order to make people believe that they will be successful in their businesses and lives, not just to spend much money only on public projects.

It sounds difficult to do it, but policymakers have to try to, or try to show that they try as hard to as possible.

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