Adam Gopnik in The New Yorker:
Far from adjusting our expenditures to the needs of the moment, it seems, we tend to wildly overswing, according to our mood. The difference between the provident ant, who cautiously saves up for winter, and the carefree grasshopper, dancing and hopping, is a matter of what Keynes called “animal spirits.” It is better for the common lot if each of us is a hopper (and a shopper) rather than a hoarder. Being a nation of grasshoppers is allied to being a nation of hope.
That bit reminds me of one of the most insightful things written in the midst of the opening panic in September, this blog post by Megan McCardle about some cognitive errors that contributed to the crisis. But then Gopnik takes a very different route than McCardle, bringing the financial crisis to life by invoking a holiday classic:
In “It’s a Wonderful Life,” George Bailey’s Building & Loan is, let us recall, the reckless banker of Bedford Falls, giving what would now be called subprime mortgages to people like Mr. Martini, who would be better off renting. And it is mean, miserable old Mr. Potter who berates Bailey for the practice. “And what does that get us?” Potter asks. “A discontented, lazy rabble instead of a thrifty working class.”
Gopnik sees value in both George Bailey’s and Mr. Potter’s views – with George calling on people to sacrifice for the greater good and Potter acting in his own selfish interest and assuming others will as well. (Another recent column I read – somewhere – pointed out that the dystopia of Pottersville would have survived the industrial decline of upstate New York much better than the Bedford Falls George Bailey protected.)
But for Gopnik – as for Caldwell, and as for most observers – the crisis demonstrates the fickleness of the market itself, and the extent to which it is dominated by what an economist might have once called “animal spirits”:
An economy is not a rational model; it’s an emotional muddle. It depends on how you feel about your neighbors, about next year’s hopes, and about Mr. Martini. Which is why another new President once warned against fearing fear, and why the only thing that can cause us to panic now is panic. There is something faintly encouraging, just barely hopeful, in the human familiarity of the counsel being given by the Keynesian economists. For what they are telling us is just what the parent, in that long bad moment, wishes for the child: Take a deep breath. Look at the ornaments! Don’t cry.