What does the prime minister mean when he speaks of reviving‘animal spirits’? It sounds like an unusual metaphor coming from thismild-mannered and soft-spoken man.
Yes, the phrase may conjure images of some shaman working upbizarre rituals, but it is actually part of economists’ jargon (which explainswhy Manmohan came to use it). It was coined by the great economist John MaynardKeynes in his classic “The General Theory of Employment, Interest and Money”(1936).
What he meant by the term is simply that there is a sort ofx factor in business and economy that goes beyond policies and numbers, call ittrust or confidence, which propels businessmen to go for it, make newinvestments even if the scenario is rather depressing, or propels consumers togo and buy stuff that they otherwise might not have given the depressingscenario.
The Economist (that is, the British weekly) explains ‘animalspirits’ this way:
‘The colourful name that Keynes gave to one of the essentialingredients of economic prosperity: confidence. According to Keynes, animalspirits are a particular sort of confidence, "naive optimism". Hemeant this in the sense that, for entrepreneurs in particular, "thethought of ultimate loss which often overtakes pioneers, as experienceundoubtedly tells us and them, is put aside as a healthy man puts aside theexpectation of death". Where these animal spirits come from is somethingof a mystery. Certainly, attempts by politicians and others to talk upconfidence by making optimistic noises about economic prospects have rarelydone much good.’
But why Keynes? Why now?
Keynes’s classic work was in response to the GreatDepression of 1929. When comparisons were drawn between the global financialmeltdown of 2008 onwards and the Great Depression, economists obviously turnedto Keynes for a way out. This led to a resurgence of interest in Keynes, somuch that the phrase ‘animal spirits’ figures in the title of a couple ofeconomics books recently. Manmohan Singh is among those policy-makers who havedrawn inspiration from Keynes: he advocated the Keynesian fiscal stimulus atthe G20 summit in Washington in 2008.
Will it work? Will Manmohan be able to revive ‘animalspirits’ and take the Indian economy back to 8+ growth rates?
These ‘animal spirits’, of course, cannot be revived bychanting of some mantra. ‘Animal spirits’ involve values like trust andconfidence, which seem to be in rather short supply these days, especiallyafter all the bungling in the coal sector and telecom policy and so on.
Is Manmohan Singh signalling a fresh beginning?Circumstances indeed favour that. He is back in the finance ministry, even ifonly till the reshuffle. The presidential nominee is decided “ and he is notthe one, UP results mean the talk of a Rahul takeover is over for a while.
(This article was written on the eve of the cabinetreshuffle after which PC became India’s new finance minister)
