When Keynes marries animal spirits

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Old Shep
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Re: When Keynes marries animal spirits

Postby Old Shep » 19 Mar 2016, 12:58

I think that Keyne's reliance on 'animal spirits' was an admission of the deep flaws in his theories. The biggest criticism of keynes is that his theories ignore human action and motivation. Passing economic trends off as the result of 'animal spirits' was a way of marginalizing and ignoring the effects of the central bank monetary policy manipulations that he promoted.

The booms and busts of an economic cycle are not caused by random, unknowable animal spirits. They are caused by too loose a monetary policy ( increases in the money supply ) which cause an expansion of credit and a short term "boom" ( bull spirit). During that boom the easy credit is mistaken for real demand. Interest rate manipulation leads to malinvestment. When the credit bubble reaches it's end we are left with an economy that is misaligned with the underlying fundamentals. During the contraction/correction many go bankrupt due to having misread the economic realities due to the distortions intentionally created by the fed. This leads to the "bust" ( bear spirit).

My opinion, Keynes' theories would have ( and should have ) been dis guarded decades ago if it weren't for the fact that they allow a very small group of very powerful people to have a tremendous amount of control over the lives and resources of the rest of us.

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