Keynes’ term “Animal Spirits” is one of those key economic concepts that many economists seem desperate to deny, avoid, or leave up in the attic like a crazy aunt.“Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”
It’s the human element; a core emotionalism that makes some people uncomfortable. The sort of person who aspires to become economists (or to Wall Street) are often the types who try hardest to deny/avoid/control our own humanness.
Because so many people refuse to go there, the whole “Animal Spirits” area a great place to look for unforseen turning points and big surprises. Besides, it doesn’t require heavy data analysis or that math stuff, so I am particularly attracted to it.
All a long preface to the conclusion that we are probably set up for a “great” summer in terms of animal spirits. After 6-7 long, miserable years of grinding out of the Great Recession, I think we will see optimism breaking out all over the place. That starts in motion a great cycle of self-reinforcing economic activity driven by nothing more than people felling “better.” That marks the end of the analytical section of this piece. You can see why I like tilling this particular field…
Why do I see this? Its about 1/4 in the statistics, 1/2 in the weather, and 1/4 in my gut (which has coffee in it but no breakfast yet so this could be a little disjointed).
- Statistics: The job numbers are getting better. Meaningfully so. Retail sales are decent. Corporate cash piles are huge. The stock market is up and resilient vs shocks. All that shows a lot of dry tinder looking for a spark of optimism to ignite it.
- Weather. It is going to get better. It has to. It’s been awful recently. Spring will come and “everyone” is going to feel AWESOME because the change is going to be huge. I am not kidding here. That same schlep sludging through slush today is going to walk to work in a few months and notice a breath of spring, feel the sun on their (slightly exposed) skin, and see the most amazing seasonal event in New York City. GIRLS IN SKIRTS! You think I am kidding. But there is always that one day where it seems like women’s legs reappear all at once via some magic sartorial bush telegraph. And the sap rises (for all parties involved) for all the deep, primal possibilities that bare legs suggest. That animal surge will feel particularly powerful because the weather in the most of the country (OK, I’ve been wearing shorts recently) has been abysmal. In particular, it has been awful in areas where large numbers of decision and opinion makers are centered – the Northeast Acela Corridor in general and New York in particular. One thing you appreciate more when you leave New York – the emotional “weather” in New York has a huge impact on the nation’s outlook overall. And New Yorkers are tired, cold, miserable, grumpy, and wading through slush.* Animal Spirits do not thrive in slush.
- Gut: It feels like people are sick and tired of being sick and tired. Politically, even the Republican’s seem to have lost their taste for mayhem. We haven’t had a catastrophically stupid, self-inflicted, politically driven economic shock from them all year long. Heck, the debt ceiling passed with barely a peep. Some of that is upcoming elections, but I think it also just reflects exhaustion. You can only stay angry and outraged for so long. The same goes on the Democratic side, where enthusiasm for Obama is ebbing more out of exhaustion than anything else. In the corporate world, companies are tired of belt tightening. Executives are tired of working hard(er). They want to hire minions to do the actual work and go back to playing corporate politics full-time again. CEO’s want to deals (which are fun) vs cut heads (which isn’t). And ordinary citizens are just tired of preparing for the worst (which has often come) and looking to splurge a little bit.
Put all that together and Spring/Summer 2014 could prove to be the catalytic moment where Animal Spirits start to drive things forward – not hold them back. I am NOT sure if that drives the stock market much higher in 2014. It “should.” But stocks tend to reflect the next 6 months earlier than we think, so that rise might have already happened. But it WILL drive the real economy higher, faster, stronger. And that should eventually set us up for a really nice run in the markets over the next few years. Unless we go to war in Russia, another hurricane hits the Northeast, or the Republicans revert to prior obstreperous form.
Anyway – on to breakfast and a final day of touch-up painting. Plus some amateur plumbing work (be very afraid). Move-in is tomorrow.
* Slush: It is said the Eskimos have 10-15 different words for “snow.” I have always thought that New Yorkers needed at least about 5-10 different words for “slush.” Snow is actually pretty uniform within a limited range of types. Slush expresses itself in a much wider, occasionally astonishing variety of ways…