Rekindling the Animal Spirits in the Global Economy to Rejuvenate Growth

The Metaphor of the Animal Spirits to Describe the Markets

For those of us who observe the financial markets gyrate wildly from highs and lows to periodic booms and busts, the analogy of a beast that has periodic bouts of aggression and depression is the most apt metaphor to describe these swings and mood shifts in the markets. No wonder that many economists liken the financial markets and the economy to that of animal spirits, which drive growth through a process of aggressive wealth creation and at the same time, when they are not tamed properly, lead to busts and market crashes. The key aspect here is that the economy needs to be stimulated in the same manner that as humans, we have to be aggressive in our careers and at the same time, know when to stop and quit. In other words, kick starting an economy after it crashes is like an individual who rediscovers his animal side after languishing in the doldrums for a while and starts to rebuild and rejuvenate him or herself. This metaphor of an economy that is powered by animal spirits is the title of a popular book by famous economists, which is indicative of the hold that this metaphor has on popular imagination.

Oscillating Between Excess and Moderation

The point here is that economies and societies are comprised of individuals and hence, markets represent the popular mood of the individuals who make up the same system. As any student of economics would tell you, an economy grows and crashes in the same manner that individuals have highs and downs throughout their lives. This is where the metaphor of rejuvenating growth by rekindling our animal spirits is so apt to describe the manias, panics, and the crashes. In other words, when we are facing a downturn in the economy or in our professional or personal lives, the best way to bootstrap and lift ourselves and the economy up is through reconnecting with our animal nature and hitting the ground running so that we finish ahead of the others. Of course, the animal spirits metaphor is also used to describe how individuals in societies and economies once they lose their Mojo can flounder, languish, and hence, need a dose of adrenaline to rouse themselves and motivate themselves to perform well and succeed.

How Markets Correct Themselves and Why we need Animal Spirits Now

However, just like rekindling animal spirits would lead to highs in our careers and by extension the economy can do well when individuals pour all their energies, there needs to be some moderation as well as otherwise excesses can lead to crashes and busts. This is precisely what happened in the decades of 1990s and the 2000s when the excess of speculation and financialization led to the global economic shock of 2008. Therefore, many economists who use the animal spirits metaphor also say that the beast needs to be tamed from time to time and this is the power of the free markets that correct themselves when the balance is exceeded. In other words, a well functioning economy based on markets would find the equilibrium between excessive manias and booms and would correct itself when faced with too much of the good thing. This is the central theme that many economists point to when they talk about the economy being rejuvenated through the rekindling of animal spirits. Further, they also point to the fact that of all markets, the stock market in particular resembles animal spirits in action as the wild swings that we witnessed in recent years are certainly like an animal that is out of control at times but nonetheless provides the much needed energy and momentum for the creative destruction processes of capitalism.


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Managerial Economics