Animal Spirits?

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For anyone who has slogged through J.M. Keynes’s General Theory, one finds a pretty muddled and incomprehensible collection of words. (Henry Hazlitt did a good job of debunking this book in his The Failure of the New Economics.)

However, mainstream economists often try to hang on his every word, as though what he said actually made sense. Today, we see Robert Shiller trying to provide a modern “translation” of Keynes’s flippant “animal spirits” remark. In other words, Shiller actually takes this nonsense seriously.It is hard to imagine that anyone with real training in economics can believe that a comment like “animal spirits” should receive a second of analysis. Instead, we read this Yale University economist trying to tell us with a straight face that “animal spirits” actually can provide an explanation for our current economic meltdown:

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.

But wait! There’s more!

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.

If that were not bad enough, Shiller is collaborating with another Nobel Prize winner, George Akerlof, to produce the following howler: “Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism,” which will be published by Princeton next month.

Yes, in the end, we get babble — literal babble — from the “elite” mainstream economists. It seems to me that the animals must be running the zoo.

6:52 am on January 27, 2009