Robert Schiller, the famous Yale economics professor (see the Case-Shiller index mentioned above), has a great opinion piece in today’s WSJ, Animal Spirits Depend on Trust. I have referred to “animal spirits” more than once, here is Schiller’s description:
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.
The article goes on to say that recovery will not commence until trust is restored in the business and consumer sectors. Given the conversations I have been having with my clients, I can say that trust is very low at this point.
Another entry in the classical vs. behavioral economics debate: we are not always the rational actors that classical theories rely upon.