Do you feel that in the air? It’s the rustling of politicians all over the world, ready to meddle. It’s coming. They’ve been pretty quiet over the North American summer. But that’s probably about to change. The task of today’s Markets and Money is to figure out what kind of change…and whether it’s the kind of change you embrace…or flee with monster truck force.
By the way, we have no objective data to support our observation that the environment is about to change. It’s more of an intuition, the kind of feeling you get, for example, when you’re in a big crowd. Crowds may not be thinking things, but they are certainly passionate and will sweep you along if you find yourself among one.
If you want to put it in economic terms, Keynes’ term ‘animal spirits’ captures the mood. The animal spirits of the economic world are those instincts that drive people to work, create, and show endeavour. Luckily, we all seem to be hard-wired for self-improvement. This is how Keynes put it in his General Theory of Employment, Interest, and Money:
‘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.’
Now this is an interesting quotation for a lot of reasons. For one, many of today’s micro-managing central planners would be horrified to learn that Keynes doesn’t see man as a ‘rational’ or ‘economic’ being. Instead, he seems to be saying people get out of bed every morning and try to improve their lives because that’s what life’s about. Pure rational economic calculation doesn’t fit in.
It gets more interesting when you put Keynes’ remark in the context of today’s economic policy. Bankers and politicians try to ‘bring forward’ demand by extending credit and spending money they don’t have, respectively. In Keynes’ terms, they’re trying to artificially stimulate spirits by throwing the red meat of free money out in the open.
In other words, modern economic management isn’t about letting man be free. It’s about incrementally increasing his economic slavery by making him dependent on the banks and the State. Yes, that’s probably a big claim for a Monday morning, but we thought we’d put it out there anyway.
From Beijing to Brussels, different kinds of spirits altogether are stirring in political centres (where predators and parasites lurk). These are the spirits of government intervention, coercion and desperation. And since financial markets have become dependent on stimulus from governments and low interest rates from central banks, the awakening of the these spirits means markets are about to get a lot more volatile.
for Markets and Money
From the Archives…
When the Trickle Becomes a Flood
10-08-2012 – Greg Canavan
What Central Planners Can Never Know
09-08-2012 – Bill Bonner
The Central Bank Big Bazooka in Theory and Practice
08-08-2012 – Bill Bonner
In Thrall to the Iron Fist
07-08-2012 – Dan Denning
Cracks in the Foundation
06-08-2012 – Dan Denning