Animal Spirits for Worse or Better

“Animal spirits”, first coined by Keynes during the Great Depression, refers to people’s thoughts and feelings that can affect how the national economy performs. The term has been loosely applied in various ways to push for specific government policies by both conservatives and liberals.

Proponents of free market economics present an interpretation of “animal spirits” to push for lower taxes and fewer regulations. Jamie Dimon, who is CEO of JPMorgan and head of the Business Roundtable of 200 CEOs, espouses this one-sided business viewpoint. He says Trump’s economic growth agenda has “woken up the animal spirits” and ignited confidence in the economy.[i]

Nobel laureates Akerlof and Shiller in their 2009 book Animal Spirits[ii] show us how animal spirits can boost creativity and innovation that help the economy, but they also show us how animal spirits create excesses that harm the economy, as happened in the financial market crisis in 2008. An important role of government is to restrain the overconfidence and excesses caused by the animal spirits. The government needs to regulate financial markets to create a well-functioning economy that creates well-being for all people, and not just outsized profits for investment banks and income for the rich.

Animal spirits extend beyond the financial sector and include many emotions besides confidence (and over-confidence). For example, animal spirits can prolong economic recessions when workers feel they are not being treated or paid fairly. Akerlof and Shiller also show us how bad faith and corruption can bring down economic performance. The government plays an important role in creating and guiding animal spirits to support economic performance that improves societal well-being and protects the environment.

Buddhist economics is based on human nature being altruistic, because people are interdependent on each other and interdependent with nature. People’s animal spirits include generosity and kindness, because a person’s well-being reflects the well-being of others and the environment. Buddhist economics uses this approach to animal spirits in criticizing Trump’s proposed economic agenda and its potentially devastating impact on the well-being of most Americans.

In Buddhist economics, greed makes people unhappy, and so people no longer focus only on their own selfish interests as they do in Dimon’s free market world. Being kind to others makes people happier.[iii] People build upon moments of compassion with a positive feedback loop: Kindness makes you happier, and happier people engage in more acts of kindness.[iv] Now our actions are win-win, because helping others also helps us. This echoes the Dalai Lama’s teaching that happiness comes from practicing compassion.[v] In contrast, free market advocates think that humans are selfish and egotistical, and push ahead to take advantage of situations that make themselves better off. In this win-lose world where one person’s gain is another person’s loss, people are happier when consuming more stuff and winning (a promotion, sex, sports), even if the happiness is temporary and people revert back to their former level of happiness (or pain).

The free market goals are to maximize total national income. Free market policies focus on national economic growth without concern for the distribution of income or the degradation of the environment—Trump’s proposed reduced taxes for rich people and companies in an unfettered fossil fuel economy. Global well-being and the development of poor countries are ignored.

The Buddhist economics goals are providing a comfortable, meaningful life for all people while caring for the environment. The role of government is to structure markets and guide animal spirits, so that the economy helps us and does not harm us. Buddhist economic policies focus on creating a robust domestic economy with shared prosperity and sustainability—more progressive taxes to improve the living standards of those in need, and investment in a modern infrastructure for a clean energy economy with global leadership in green technology and sustainable agriculture. The Federal budget shifts from defense funding for wars and new weapons to global funding to help poor countries develop their economies with clean energy and heal their damaged environment. We have the technology and know the policies to achieve the goals of shared prosperity in a sustainable world—now we need the courage and determination.


[ii] Akerlof and Shiller, Animal Spirits, Princeton University Press, 2010



[v] Dalai Lama, The Art of Happiness, pp 22-23.