On Animal Spirits
Here’s the thing with Keynesian economics: animal spirits, like regular animals, sometimes come back to bite you.
Keynes chose to believe that humans worked based on “a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities”, which he called “animal spirits”.
The concept was essentially that people, when deciding to buy something or save money, essentially went with what made them feel the best. If saving for retirement is boring, and buying a new flat screen is enticing, then Keynes reasoned that people would buy the flat screen almost all the time. As pleasure-seeking pain-avoidance animals, it makes sense to a large degree. But ….
Keynes did not take into account that rational thinking plays more of a part than he would like to have believed. Yes, a flat screen now is better than the boring old savings for retirement that people might not otherwise want to do. However, animal spirits are governed by rationality, even if not perfectly; additionally, mature, responsible adults are in the habit, regularly, of denying their animal spirit nature in the short term for longer term gains. Hell, even kids will do this for marshmallows. Eat one marshmallow now, or wait fifteen minutes and eat two.
It doesn’t even have to be so terribly obvious, either – even if we grant animal spirits, we can see that Keynesianism fails in its very nature. If you’re an adult, and you have parents, you know what retirement is like to a certain extent. Your speak to your parents, and unless they’re independently wealthy, money is a topic that comes up fairly often. You might see an in-law “un-retire” or a friend’s parent who can’t retire. Even if you don’t know anyone in the previous generation, you read your own retirement statements. You might remember then in 2005 as constantly going up, which was great — but then now, you notice that they’re not going up as fast, or not going up, or, in the worst case, going down. Animal spirits take over, and suddenly your dream retirement on a tropical island starts to look a lot like eating cat food in a cold apartment in Philadelphia. Even ignoring a rational mind that would make calculations (and again, as above, it’s not something we’d reasonably ignore, but we’re granting the animal spirits thing for this part of the argument) many people do make calculations, and even those that don’t still have it done for them in many instances by the companies with which they invest), you don’t need anything other than animal spirits to see that socking away more money is going to ally your fears.
When was the last time you saw a retirement account statement that didn’t include future projections in different scenarios? Even the government does this with social security statements.
(Watch, someone will get the “bright” idea to stop having those to force consumers to channel their animal spirits in the “preferred” spending direction.)
There is only one real way to have a properly functioning economy, and that’s to let it run its course. An economy can’t be centrally planned. An economy that runs on the ideas of Keynesianism finds itself constantly paired into a corner, trapped by the very efforts it intended to free itself, like when you want to weaken your currency but it has the opposite effect. We can see today, and have seen for almost two decades in Japan that Keynesianism just doesn’t work, and I’m wondering how long it will take before people finally give up on it. I’m not going to be holding my breath though. I think in the meantime, all we who are anti-keynesian can do is do our best to bring about the glorious agorist future.