Animal Spirits vs. Your Prof

The guts of global finance.

The legendary economist John Maynard Keynes, believed that at its core, economics is ruled by “animal spirits”—that markets operate more according to Freudian animal heritage and erotic, emotional impulses, rather than reason. Other thinkers from this early formative era of economics, like Joseph Schumpeter, saw a violent, warlike impulse of “creative destruction” lurking at the heart of capitalism. And Karl Marx, that great dreamer, was convinced that economics could pave the way towards a utopian future in which people give according to their abilities and receive according to their needs.

But around the 1950s, when the logical positivists started strutting their philosophy of strict rationality, applying scientific method to all social phenomena, economists jumped on their bandwagon. Over the next few generations they rationalized human behavior, sanitized their theories and models, and tried to transform economics into a mathematically driven exact science based on the model of physics.

Now in the wake of the financial meltdown and as climate change punches an existential hole into the current economics paradigm, it is becoming painfully obvious that the rationalist enterprise is a grand delusion. Not even one in a hundred—nay, one in a thousand—professors of economics and mainstream economic policymakers around the world saw the meltdown of 2008 coming . . . and now the logic freaks of economics are on the defensive, forced to admit that their understanding of nonlinear, real-world systems is frail at best and that their mathematical models have very little to do with reality.

This is the perfect moment to end 60 years of positivist rule—to grab these old school practitioners by the scruffs of their necks and toss them out of power . . . and to give birth to a new paradigm of economics—a psychonomics, a bionomics, an ecological economics—a wide-ranging, multifaceted, human-scale discipline full of magic, mystery and animal spirits once again.

—Kalle Lasn, Meme Wars: The Creative Destruction of Neoclassical Economics