‘We’re all sick of Britain being in the slow lane … we want to see a revival of those animal spirits so that we can grow the economy and bring investment here,” said Rachel Reeves on her return from Davos last week. Plainly a memo has gone round: in a radio interview this morning, business secretary Jonathan Reynolds claimed Labour’s willingness to take bold decisions “unleashes the animal spirit, the sense of something exciting happening”. When Reeves set out her plan for growth this afternoon, she reprised many of her Davos themes. She’s on a strange crusade against newts and bats, holding wildlife concerns responsible for Britain’s anti-growth mindset; she thinks bringing down net migration and fearlessly growing the economy are compatible and equal priorities; she’s putting a hell of a lot of faith in extra airport runways. But at least this time she wasn’t saying we should be more like Trump.
But what does “animal spirits” mean? Does it mean what Reeves thinks it means? Is it a useful concept? And how do we get hold of some of these spirits?
The phrase is first found in a 16th-century medical tract (and you should feel free to go back to Bartholomew Traheron if you want to lol at early surgery), but in its economic sense it was coined by John Maynard Keynes in his 1936 key text, The General Theory of Employment, Interest and Money. “A large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation,” Keynes wrote, elegantly answering the eternal question about economists: if they’re so smart, how come they’re always wrong? Because human psychology, singly and in herds, is much more powerful than maths. Depressions happen when business investment and consumer spending get into a doom loop, and no formula can explain this; it’s simply driven by pessimism. I’m making it sound baggy (“just vibes!”) but it was precisely this quality in Keynes – his willingness to be mystified, his refusal to stop at the hard edge of what reason and groupthink dictated, but rather, to test it against observable realities – that made him such an enduring and original theorist.
Two American professors, George Akerlof and Robert J Shiller, the first an economics Nobel prize-winner, took up the idea in 2009, when global depression was again at the forefront of everyone’s minds. They dug deeper into optimism, and what conditions might create it: trust in one another, in government, in institutions and in corporations; storytelling, specifically narratives of plenty rather than scarcity; faith in justice; the absence of corruption. Their book, Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism, is a really good read for non-economists. Its conclusion was more profound than “mood matters”. It basically called out neoliberalism from inside the house. If people perceive unfairness, mendacity, scarcity, bad faith, it will quell their optimism and economies will suffer. Markets need rules, in other words. Unfettered capitalism seeds its own undoing.
This isn’t at all what Rachel Reeves is talking about. Her ideas centre on the removal of regulation. She wants a more permissive planning approach, less environmental claptrap (see runways, bats). But it’s a mixed picture – she also cheered on a proposed £250m magnet factory in Oxfordshire, whose combination of job creation (1,000 skilled posts) and state-endorsed research and development would be exactly what Keynes had in mind for a mood-boost, and Akerlof and Shiller would call great storytelling. Reeves wants to halt the talk of decline, while clinging to the declinist narrative that migrants are the problem. Her theory of growth seems to be basically Beetlejuice (say it three times and it will magically appear). And her call to action is that we all just cheer the hell up.
To be honest, the speech did cheer me up a little bit. However bad things are, at least I’m not chancellor.
