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Fear, Greed and Animal Spirits: When spontaneous optimism replaces fear

October 8, 2009

George Heery Founding Partner

George Heery Founding Partner

I was recently reminded of the economic idea of Animal Spirits, which is perhaps the holy grail of consumer confidence.  We look forward to your comments.

 

Fear and GreedAnybody that has attended a handful of weddings knows 1 Corinthians 13:13.  It ends with these lovely words, “…And now these three remain: faith, hope and love. But the greatest of these is love.”[1] It is interesting that the King James Version of the Bible replaces Charity with the word Love.  Charity is an economic idea, and we have an economic assertion to make.  Let’s make believe that Adam Smith, Milton Friedman, and John Maynard Keynes are the saints in a little economic sect.

If there were a modern economic bible written by John Maynard Keynes, we think much of the message would be about Fear, Greed and Animal Spirits.  Keynes defined Animal Spirits as follows:

“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.”[2]

For a while real estate sellers and buyers have been dominated by fear.  Sellers fear losses, uncertainty, credit damage and even homelessness.  Buyers mostly fear missing the bottom.  Fear is a powerful emotion. It gums up the wheels of commerce, limits good will and creates other unfortunate neuroses.  It is so pervasive, whole markets have penalized measured risk and a flight to quality has prevailed.

Is Greed any better?  Of course when Michael Douglas’ character in the movie Wall Street says “greed is good,” he was wrong.  Greed is bad. It leads to various moral and economic imperfections.  Greed and fear is so strong that alas humanity fails to escape it shackles and economic markets perform.

Please click here for the entire article on the Heery Brothers’ blog.

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