Animal Spirits is a concept in economics that refers to the irrational and emotional behavior of economic agents. The idea was first introduced by John Maynard Keynes in his 1936 work, The General Theory of Employment, Interest, and Money. Since then, the concept has become a central theme in macroeconomic theory and policy.
The concept of animal spirits is closely related to behavioral economics. It suggests that economic decisions are made based on emotion and sentiment rather than rational analysis. Keynes argued that animal spirits drive both economic booms and busts, and that this irrational behavior is difficult for governments to control. He referred to this as the “animal spirits of the market.”
It is argued that animal spirits can be seen in the effects of consumer confidence on consumer spending. When consumers are feeling optimistic, they are more likely to make larger purchases. Conversely, when consumers are feeling pessimistic, they are likely to cut back on spending. Keynes argued that this sentiment could lead to a cycle of economic booms and busts.
The concept of animal spirits has been widely discussed in the field of macroeconomics and has had an impact on public policy. For example, after the 2008 financial crisis, the United States government enacted a stimulus package to try to boost consumer confidence and spending. This is an example of policy makers attempting to take advantage of animal spirits in order to stimulate the economy.
The concept of animal spirits continues to be a source of debate among economists. Some argue that animal spirits can be a powerful force in driving economic cycles, while others point out that it is difficult to measure and predict. Regardless, the concept of animal spirits remains an important part of macroeconomic theory and policy.
Khan, S. (n.d.). Animal Spirits in Economics: Definition, Factors & Examples. Retrieved January 23, 2021, from https://study.com/academy/lesson/animal-spirits-in-economics-definition-factors-examples.html
Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. London: Macmillan.
Zeleny, J. (2008, November 10). Obama’s Stimulus Plan Invokes Animal Spirits. Retrieved January 23, 2021, from https://www.nytimes.com/2008/11/10/business/economy/10stimulus.html