OPINION> Zhu Yuan
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OPINION> Zhu Yuan
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Greediness is the root of animal spirits
By Zhu Yuan (China Daily)
Updated: 2009-09-16 08:03
What are animal spirits? How do they affect economic development and social progress? The book Animal Spirits - How Human Psychology Drives the Economy and Why It Matters for Global Capitalism by acclaimed economists George Akerlof and Robert Shiller detail the most pervasive effects of animal spirits in contemporary economic life - such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes. This may be one of the approaches to probe the causes of economic crisis. Actually, the two economists believe that people's psychology or emotion impacts their behavior, which then affects their economic behavior. To be exact, they are trying to convince us that people cannot help being irrational and, therefore, an economy without appropriate supervision and control from the government tends to spin out of control. The Great Depression in the 1920s and the financial crisis today have something to do with people's irrational economic behavior, according to the authors. Animal spirits, though first used by John Maynard Keynes in the early 1930s to describe a range of emotions, human impulses, enthusiasms and misperceptions that drive economies, are not new. When economics as a theory was not born more than 2,000 years ago, ancient Chinese philosophers started to discuss whether human nature was kind or unkind. Although there has been no unified conviction whether human nature is good or bad as soon as a man is born, there is consensus that human nature has a lot to do with the influences on a person in the process of growing up. As a matter of fact, even an adult tends to be influenced by the environment, in which he or she lives and works. That is why one of the effects of animal spirits was tales such as how others get rich. That also explains why a lot of Chinese people, who did not dare to get involved in stock market when it was first initiated in the early 1990s, have now become enthusiastic investors. This reminds me of the crime of speculation, which was in the country's Criminal Law for many years until it was deleted last month. That crime involved all economic activities an individual did for profit except his or her own job. It was based on the conviction that profit-making not from proper work was the root of all evil. Suspicion that intrinsic greed in human nature might be provoked was the theoretical foundation for the inclusion of such a crime in the law. Any profit not directly from one's specific work was considered as being illegally extracted from others. A farmer was supposed to sell his agricultural produce only to the State but never to anyone else on his own. As there was no extra profit to make except the salary from one's working unit, the love of extra profit was considered a crime. The stupidity of that theory behind that crime is obvious today. And the too rigid control of economic activities to the point of allowing no room for the existence of a private economy was one of the major causes for the underdevelopment of China's economy at the time. Yet, giving complete freedom to the intrinsic greed in human nature has proved to be just as detrimental to the healthy growth of the economy. The various financial derivatives and the notorious ponzi schemes - a type of illegal pyramid scheme named after Charles Ponzi, an Italian who made a fortune in the US using this strategy - behind the financial crisis best illustrate how greedy man can be, whenever there is enough chance and room for them to display their greed. If I am right, greed should be the very root of all animal spirits. To keep all of them in the cage, it is the key to letting all involved in economic activities know that there should always be a limit to the degree of greed. E-mail: zhuyuan@chinadaily.com.cn (China Daily 09/16/2009 page8) |
