"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Thursday, March 3, 2011

Animal Spirits Are Up

Economists understand that much of what happens in the macro-economy hinges on the psychology of the individual, his or her "animal spirits."   If people think the economy is going to do better in the future, they tend to spend money, and the economy does do better.   If people think we're going in the tank, they tend to hoard their money, and the economy does tank.   There's always an aspect of self-fulfilling prophecies in economic forecasting.   Depending on the mood of the people, the economy can do either well or not so well.

So it's not that surprising (to me anyway) that claims for initial unemployment appear to be falling since the election of a Republican Congress.   But this graph from Ace of Spades makes the point clear:

To put this in the simplest terms:  when people saw Obamacare enacted, they thought we were going to hell, and acted accordingly in their economic decisionmaking, and the recovery stalled for want of "animal spirits," the optimism necessary to invest or spend; but when people saw a GOP Congress elected, sworn to the repeal of the Obamacare monstrosity, they again acted accordingly in their economic decisionmaking, and the recovery took off again.  

In short,

Obamacare = drag on the economy.  

GOP Congress = spur to the economy. 

It's just about that simple.  

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