World Recession and Animal Spirits

Recently, it has become really common to hear debates regarding whether the world economy
is heading towards a recession. How true it is, nobody knows. However, one thing is true -
market behaves according to sentiments and emotions. John Maynard Keynes, in 1930’s coined
the phrased “Animal Spirits” as a way to describe human sentiment and consumer confidence.
Now, it is used to describe market sentiment or trust in the market. It is argued by Robert Shiller
that if the “spirits” are low, the economic activity and growth will be low irrespective of the
fundamentals of the economy. Hence, it is imperative to maintain high spirits to move the
economy forward.

Currently, everyone, including economists and scholars, is discussing whether we are heading
towards a recession. Big newspapers are carrying daily news and opinion pieces on recessions.
This has led to the common man believing that we are moving towards a recession. In the 21st
Century, google searches are a good indicator of human’s beliefs and there has been a
significant increase in the number of times recession was googled in August. Hence, the “spirits”
of the people have been impacted by the constant talk about recession. If Robert Shiller and
Keynes theory holds, this will surely affect the economic growth of the world. Only time will tell,
whether we move towards the recession because of our “spirits” or due to some structural
slowdown. Till then, let us keep our spirits high!