Of Animal Spirits and the Great Churn

Issues of equity and justice do animate people in India. Is this really bad for the economy?

Are animal spirits in India dying? By the consternation caused by an FIR-happy CBI pointing fingers at top industrialists and bureaucrats (in cases that await the due scrutiny of law), it would seem a funeral is in order. India’s industrial sclerosis, Radia’s irradiation, Walmart’s withdrawal spasms and the primary investor’s low pulse—according to Prime Database, only Rs 2,166 crore of equity was raised in the first half of 2013-14—are all said to be signs only a fool can ignore. Before giving in to the gloom, however, it may be a good idea to read (or re-read) a book called Animal Spirits: How Human Psychology Drives the Economy, written jointly by George Akerlof, whose wife Janet Yellen is set to take over as chief of the US Federal Reserve (and would at least have read it if nothing else), and Robert Shiller, who won this year’s Nobel for Economics (along with two others).

In a July 2009 review for Open titled ‘Rawlsian Roulette’, I had described the book as a ‘big boost for behavioural economics’ and the authors as ‘market efficiency sceptics who warned us against markets going out of whack on account of asymmetric information and irrational exuberance, respectively’: ‘In this 2009 book, they clutch their chins, knit their eyebrows and examine the economy as a beast under the influence of confidence, fairness, money illusion and other such animal spirits, and then use these quirks of human existence to explain stuff like acute poverty and yo-yo stock prices.’

My only problem was with Chapter 13. ‘Akerlof and Shiller want State interven•tion to resolve a problem of perverse labels that distort judgment and job markets. Me? I’d rather rely on information and imagination,’ I wrote, ‘I’d count on sizzlers such as the Rawlsian Roulette scene in Dhoom: II. One bullet is spun in a six-chamber revolver, and two lovers who’ve fallen out take turns pulling the trigger at each other.

You can work out the horror of rising probability. Or just hope the bullet’s a blank, as a general rule for all, whichever end you’re at. John Rawls knew it. Others know it. Equity and justice animate people: just let a depth-of-field view of the Indian scenario come into play, and hear the economy roar with self confidence.’

Was I foolish? Should I take that last line back? Failures of equity and justice do work people up and India does pay them occasional attention. Alas, the only good roar one hears these days is Katy Perry’s on FM. Then again, this may just be a phase, a churn India must undergo to reclaim its emergence story.

About The Author

Aresh Shirali