Invisible thumb

[Now is the time for a less selfish capitalism By Richard Layard FT Home > Comment > Opinion: March 11 2009
Increasingly, we treat private interest as the only motivation on which we can rely and competition between individuals as the way to get the most out of them. 4:42 PM 4:50 PM]

[Smith wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive... Even though Smith and Pigou have the reputation of being rather conservative economists, many of the deep insights about the importance of nonmarket institutions and nonprofit values came from them, rather than from Keynes and his followers... The present economic crises do not, I would argue, call for a "new capitalism," but they do demand a new understanding of older ideas, such as those of Smith and, nearer our time, of Pigou, many of which have been sadly neglected. What is also needed is a clearheaded perception of how different institutions actually work, and of how a variety of organizations—from the market to the institutions of the state—can go beyond short-term solutions and contribute to producing a more decent economic world. —February 25, 2009
Amarya Sen's Two Brilliant Essays on the Relevance of Adam Smith Today from Adam Smith's Lost Legacy by Gavin Kennedy. Amartya Sen writes two great articles of current relevance on Adam Smith. The shorter one is in the Financial Times HERE (March 10 2009) and the longer one is in the New York Review of Books HERE (Volume 56, Number 5 · March 26, 2009). I recommend them both to you 11:32 AM]

[The mood of corporates, governments and households depends a lot on expectations. Keynes emphasised the critical role played by the animal spirits of entrepreneurs, who take risks, innovate and so accelerate growth. When the economy swings up, animal spirits bubble fiercely. But in a downswing, animal spirits droop. Risk taking is replaced by risk aversion, adventure by caution, and innovation by safety-first tactics. What's wrong with 6% GDP growth? 11 Mar 2009, Swaminathan S Anklesaria Aiyar, ET Bureau]

[Let me put in a plug here for the godfather of behavioral economics, John Maynard Keynes. His 1936 "General Theory" is often interpreted simplistically as a call for fixing recessions by boosting demand with government spending. But at a deeper level, Keynes was analyzing the role of psychological factors, such as greed and fear, in economic decisions. He understood that markets freeze when people panic and start hoarding cash. ("Extreme liquidity preference," he called it.) Conversely, economies start to roar when investors feel a surge of what Keynes called "animal spirits." 'The Death of 'Rational Man'
By David Ignatius > washingtonpost.com > Columns > Sunday, February 8, 2009]

How far can the "animal spirits" are kept under leash by normative homilies without allusion to the invisible thumb hid in every heart, is the point to ponder. [TNM]