El Blog de MARKETING de GONZALO SAIZ

Professors Robert Schiller and George Akerlof, from Yale and Berkeley University respectively have just published a very interesting book called, "Animal Spirits, How human psychology drives the economy and why it matters for global capitalism.

In this book, what these professors say, according to an interview to Schiller at the McKinsey Quarterly, is that one of the principle problems with macroeconomic theory today, is that economists have not reach an understanding of what drives the whole thing, what moves the economy and this is representing the fundamental issue with the crisis.

Schiller says that a lot of economists imagine that it is only the technological changes or the actions of the Federal Reserve what moves the economy, but both professors, have the conviction that human psychology is a very important driver of the economy, and that is according to them, widely misunderstood.

I have to say that I fully agree with them because I studied economics and this what I have heavily complained about since then. Economists like emphasizing the rational side of human nature, and yes, people are goal oriented but underlying it all is something else, and it is not the rational part of humans, it is the animal spirit.

The animal spirit term was coined 2000 years ago to describe the motivating spirit that drives people, what makes you to get up in the morning?, what makes you to get into action?, and then Keynes, in its famous 1936 book, gave it an economic meaning, the fact that the economy and the future are so uncertain is because economic decisions are highly driven by animal spirits. Kind of, I do not know what's going to happen but I'm not going to stay in bed, going to get up and do something. The authors strongly believe that this is what drives creativity, entrepreneurship and ultimately the whole economy.

They also say that it is very important to think about this in the current situation, the current crisis, because most of the economists had not a clue that this crisis was coming. Yes they had impressive models, econometric models, but did not know anything about this crisis, couple of years ago economists would have even said, no recession!, nothing is going to happen. The problem is that the element that was not in their models, was the animal spirit and it was manifesting itself in terms of the bubble of the stock and housing market, this was not in their models because economists are not in the business of modelling human psychology, it is simply not part of the econometric models to predict the future

Therefore, the implications for the future are huge. The current crisis is worrisome because we're seeing a huge decline in economic confidence, an element which is part of animal spirits, and this is the fundamental problem in the world. The problem is people don't want to spend money, individuals do not want to spend money because they have a bad feeling about the economic situation. Businesses do not want to hire people, do not want to expand their operations and they do not want to do it for the very same reason, this is the fundamental problem, it's fundamentally psychologically, that does not mean that to solve the problem we need some psychological therapy but the approach has to be done in understanding the basic thing we want to correct, which is the confidence problem.

You might now be wondering why I reproduced this article in my blog if it is not marketing related. Well, I think it is, it is actually highly related to marketing. On e of the most complicated things to manage at marketing are perceptions and if it is true that the crisis, at the stage that we're now it is fundamentally a psychological crisis because of the consumer confidence, we are going to need some good marketers and experts in communication to change those perceptions and come out of the bloody crisis, aren't we?, what's your take?, any comment? (comments in Spanish are also welcome).