Beyond human rationality, the things that influence our decisions are called “animal spirits”。
The term was first proposed by keynes, and two authors of the book, and two nobel laureates, aklov, robert shearer, tried to systematize the concept and to interpret economic phenomena and instability and suggest possible solutions using five aspects of “animal spirit” and small stories。
The book, which began in 2003 and began with the global financial tsunami in 2008, is a landmark in the discussion of psychological factors in the field of economics。
Obama of the white house reads it, government officials rob it, and then many people around the world fight to read it
Today, let us also turn over animal spirit and read it as a profound tribute to the keynesian philosophy, correcting and supplementing traditional economics, and as a new inspiration for economic logic。
01
What's an animal spirit?
It's irrational human economic decision-making
In western classical economics, the invisible hand plays an extremely important role, because traditional economics all believe that human beings are rational! Everyone would pursue his or her own economic interests rationally, and the economy would be reconciled and balanced accordingly. But that is not the case, and humanity is often the driving force behind economic development. Just as, as long as there is an economic crisis, one will think of keynes, his view of “government intervention in the economy,” but do not forget that keynes was also the first person to introduce the concept of “animal spirit” as the real source of recession, volatility, and emerging from the crisis, which is difficult to quantify, but it has an absolute track record。
02
What does the animal spirit cover
Confidence, equity, corruption and fraud, currency illusions, and story thinking
Confidence in the market, the illusion of nominal currency, or the feeling of injustice, or the temptation of greed and corruption, as well as the success story of the living template, can influence people's decisions on loans, consumption, savings and investment, and these five “animal spirits” have been behind global financial events. Whenever and wherever they occur, their role in macroeconomics can be seen and these five terms can be used to accurately describe the processes of these macro-incidents, many of which are unexplainable parts of traditional economics。
03
The most important animal spirit - faith
When people make major investment decisions, they must rely on confidence. Confidence is not just a rational prediction, it is an impulse for decision-making, it is a blind expectation of the future and the most important element of the animal spirit。
While the author's distant relatives spent $1 million on real estate in the corner of the world near the arctic circle, the risks were understandable, at a time when developed countries around the world were in a real estate investment boom with full confidence in the continued rise in housing prices. It is clear that this confidence is not entirely a rational projection, that it lacks the risk of a calm balance between income levels, falling housing prices and inflation, and that confidence here clearly also includes impulses to follow the wind。
And in economics history, it was with such full and diminished confidence that there was a cycle. In good times, people have a sense of trust and instinctive faith that they will succeed; and what is lacking during panic is not money, but confidence, and the credit crunch caused by lack of confidence is often a target for which policies are more in need of rescue。
04
The second animal spiritual expression - equity
Common economics tells us that when demand for a particular commodity increases, prices rise when supply is short of demand. But it is clear that it ignores equitable market intervention。
In the united states, snowstorms often occur in the winter, and if snowstorms are followed by the traditional economic theory, the snow shovels in the hardware store will sell very well and increase prices as a result, but researchers have found that 82 per cent of the respondents to the snowstorms consider it unfair to raise the price of snow shovels and to be a disaster! So many hardware stores in the united states do not raise the price of snow shovels to take care of people's feelings of fairness in economic relations. Such equity is indeed not the rational behaviour of traditional economics。
05
The third expression of animal spirit - corruption and fraud
It looks like the dark side of the economy, but the other side is innovation. If people were willing to pay for medicines, the market would produce medicines; if people were willing to pay for “one-size-fits-all” medicines, the market would also produce them. This “false medicine” can be a bountiful profit for the equity price of listed companies, a sub-prime loan packaged on wall street floors with high ratings... Innovation and “drilling” corruption in the financial sector may be transient, particularly confusing and visible on the night before each recession。
06
The performance of the fourth animal spirit - currency illusion
Generally speaking, it is people who react only to the nominal value of the currency, while ignoring the psychological illusion that real purchasing power changes. The “currency illusion” is typical of wage viscosity. The deflation of the economy during the great depression in the united states, the strong opposition of workers to wage cuts by employers, and the irrational acceptance of monetary face cuts even if the real purchasing power of money is not reduced, are examples of currency illusions that limit the flexibility of wages and prices. When moderate inflation occurs, it is difficult for ordinary people to realize that at least part of the increase in wages reflects a shift in inflation, not just the employer’s affirmation that it is only when inflation increases that it is thought that the employer should include an expected adjustment to inflation。
07
The last animal spiritual element -- story thinking
It's the best part of the animal spirit. The story is like an infectious disease, irrational, and the confidence of a country or a large group of people tends to fluctuate, and sometimes even helps to boost confidence in development by telling a good story than positive policy support。
Since the founding of the united states, the “american dream” has been repeatedly emphasized: a person succeeds through his or her diligence, courage, creativity, rather than relying on the assistance of a particular social class and others. This spiritual nature is a “good story” from 0 to 1. China and india are similar in this regard, and the cultural context is characterized by the “national revival” story. Some countries, however, will be mired in economic depression for several years because of the irrelevance of popular thinking in tragic stories, such as greece, which has often identified itself as a victim of nazi aggression, the victim story model being the “bad story” of the worst macroeconomic developments。
08
How does the animal spirit lead to depression
And the response to the financial crisis
Any economic crisis stems from the bursting of confidence, beginning with the collapse of confidence and finally its rebuilding. By its very nature, “economic overheating” is dependent on animal spirits, and more and more people are beginning to believe in a new cycle of economic prosperity, high-handed consumption, a willingness to sell investments to others, public and government regulation, and the growing number of fraudulent “buffs”, encouraging stories of a new era are being amplified until the cries are over。
Perhaps for the vast majority of recessions, interest rate reductions and fiscal expansion are the simplest effective “cool medicine”, but the credit crisis is by no means an ordinary model, with a collapse in confidence leading to a decline in demand and, consequently, employment, and large-scale bank lending, even at zero interest rates, with businesses reluctant to invest. In this context, in addition to boosting aggregate demand, policy objectives require bolder deficit programmes to create financial liquidity and stimulate the recovery of credit targets. At the same time, for citizens, confidence is more important than gold, and it should even become an obligation and responsibility for everyone。
09
The currency illusions make many people naive about real estate investments
Many people have a hunch that housing prices are rising and falling in almost any part of the world and that real estate is the best investment. This intuitiveness has been further amplified, particularly during the period of the real estate boom, by stories passed through the mouths of “population growth, increased land demand and economic prosperity”. But in explaining the impression that house prices will rise forever, currency illusions are key, because most people, when talking about house prices, will only describe how they were bought at $12,000 50 years ago, which has now increased tenfold, without taking inflation into account. Perhaps the real value of housing prices has increased by only onefold, with a discount of about 1. 5 per cent per annum, well below 7 per cent of the annualized return on us equity investment. Once one day, the policy and expectations for real estate investment change when the social climate is transformed into an increase in housing prices is not fairly shared. Real estate investments have witnessed economic shifts and have seen all the “animal spirits” linked to them。
10
Fairness is the starting point, and eventually it has to be in competition
The blind pursuit of equity may not be an effective solution to the divide between rich and poor。
It is well known that the united states is a country of immigration, known as the crucible of races, but that the wealth of different ethnic groups is very different. Latino-americans are almost identical to american whites, asians on the east coast have a per capita income even higher than whites, but blacks continue to maintain high levels of unemployment and divide between rich and poor. It is because asians and latinos have struggled to win equality of status by working for generations, using the road of “competition before fairness”. And the stigma of black americans remains heavy, with expulsions and massacres making them more concerned with racial equality. Even through the black affirmative movement, the united states has given equal protection to blacks by means of policy decrees, but they continue to work with a victim mentality, without the process of achieving equality through competition, and without a foundation of wealth that supports equity。
Thus, in addressing equity issues, policies cannot ignore the direction of competition, but can also attempt to use “animal spirit” to solve the problem of rich-poor division, without all being left to markets or historical opportunities。
