In his magnum opus work, “The General Theory of Employment, Interest, and Money,” published in 1936, John Maynard Keynes made famous the reference to “animal spirits” – those things that relate to the instincts and emotions that can drive human behavior. Keynes wrote of them in the context of economics. The passage which has become the stuff of economic legend reads:
“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.”
Well, in President Donald Trump’s economy, I am pleased to report that Keynes’ animal spirits are moving rapidly throughout the economy and no séance is required to draw them out.
Of all places, a CNN Poll released earlier this week revealed that 71 percent of those surveyed feel the economy is in good shape – the highest level since 2001. Another bit of good news is that seven out of 10 people now say they trust the free market more than the government.
The actual economic condition supports the robust polling results. Unemployment fell last month from 4 percent to 3.8 percent. This number is remarkable when you consider that the structural unemployment rate – the rate that is “built-in” to the economy because of a mismatch between jobs available and workers having skills to fill them – should be at over 4 percent, according to some estimates.
In other words, an unemployment rate this low shouldn’t be possible.
Animal spirits? The Bureau of Economic Analysis reports that Gross Domestic Product grew at a rate of 2.6 percent in the fourth quarter of 2018, and by 3.6 percent in the third quarter. Both of these numbers exceeded the expectations of many forecasters.
Some had predicted we would be in a recession by now. They will continue to predict that until we have one, and then proclaim their brilliance.
Our trade deficit is growing but our exports in 2018 increased by $6.2 billion in the fourth quarter, while our imports increased by $12.4 billion during the same period. Far from the economic trade collapse that critics predicted, we are booming on both sides.
Animal spirits? The simple truth is the environment that the president is creating is friendly toward business and investment. Entrepreneurs take measured risks, not hopeless gambles. Large corporations make strategic investment decisions based upon calculations of rate of return and payback period, not to promote the social justice ideas of Alexandria Ocasio-Cortez.
The impact of the strong economy and voters’ understanding of that strength does not portend well for Democrats. Politico posted a story this week headlined “How Trump is on track for a 2020 landslide.” The piece explains that the economy’s strong performance will make it very difficult for a Democrat to win the office because, as Democratic strategist James Carville famously taught us, “It’s the economy, stupid.”
Politico did point out, however, that if the economy should falter, then the president would be in trouble. It sounds like something you might have heard back in the 1960s: “If everything changes, nothing will be the same, man.”
Bad news for Democrats – I don’t think things are likely to change any time soon. Trump has unleashed the animal spirits of the market. Best of luck to the Democrats trying to corral them in 2020. They will need more than a Green New Deal to get them back in their cage.