Do Animals have Animal Spirits?

by on January 29, 2010 at 7:25 am in Economics, Science | Permalink

It's quite easy to see how a "real business cycle" could occur in the natural world.  Imagine a pond teeming with life.  One year a parasite infects the lily pads.  Without the lily pads the frogs can't catch flies, the flies swarm, but the frogs go hungry and the pike have less to eat.  If we measured the gross pond biota (gpb) we could see natural cycles.  Indeed, if we measured different pond sectors (the frog sector, the fly sector etc.) we could trace out a whole sequence of events as each sector of the pond responds to the initial shock and to changes in every other sector (ala a vector auto regression). 

Can there be a Keynesian business cycle in the pond?  i.e. Could animal spirits drive a natural business cycle?  It's harder for me to see exactly how this would work.  We would need "money" or something similar to generate a rush to liquidity and a decline in investment.  We could perhaps get a coordination type business cycle (ala Roger Farmer) with herd behavior.  Interestingly, the trend in biology–as I read it at least–has been to think of herd behavior as optimal for the herd but this is not necessarily the case.  We know that slime molds self-organize and aggregate during times of stress could this process be set off with no or little exogenous shock?  Could a natural system provide a model for business cycle behavior?  It would be odd if only people had animal spirits. Biology and economics have much to offer one another.

1 Neal January 29, 2010 at 7:43 am

It would be surprising if a natural system couldn’t provide a model for business cycle behavior because an economy is a natural system. More generally, any time you have a system which is always drawn to equilibrium but is susceptible to shocks (model them as random), then you should see something that resembles a business cycle. You’ve hit on a “supermodel”, basically generalized the business cycle.

2 Zamfir January 29, 2010 at 7:53 am

But how is it is surprising that systems respond to external shocks? A ball responds to external shocks too, but it is not in any sense a good analogy for an economy.

The (potentially) interesting part about ecologies like you describe is that they sometimes appear to show cycles inherently, without external shocks. But isn’t the main point of Real Business Cycle theory that economic cycles are not inherent to the system?

3 Andy January 29, 2010 at 8:08 am

Google Scholar has 3000+ results for “economics Lotka–Volterra”

4 Ironman January 29, 2010 at 8:20 am

Economics works best when it mimics processes found in nature.

Since you mentioned slime molds, they might indeed offer a great deal of insight into reliable, cost-efficient network construction, such as those needed for transit systems and communication networks.

5 Zamfir January 29, 2010 at 8:40 am

Isn’t this the predator-prey model that everyone learns in Diff Eq 101?
No, it’s exactly the opposite. The suggestion from pred-prey systems is that such systems can be inherently unstable, so that the system goes through booms and busts without external events as necessary causes.

While Real Business Cycle theory says that economic booms and busts are not features of the closed system, but effects of the adaptation to external changes, like technological change. AT’s example of a parasite is such an external event.

6 Bill January 29, 2010 at 9:09 am

Biology and hormones and emotion and lack of information and disruptive natural events and irrational exuberance and crowd behavior.

No, economics is too rational for this. Has to be the invisible hand.

7 Rice January 29, 2010 at 9:56 am

The similarities between economics and biology was a favorite meme of several of my ecology instructors. One claimed that most of the best, early papers in ecological modeling were lifted directly from the work of economists.

8 E. Barandiaran January 29, 2010 at 10:44 am

Paulson now says it was Russian spirits rather than animal spirits what triggered the crisis. Read:

9 Rob January 29, 2010 at 11:04 am

Could exogenous increases in CO2 or sunlight (fuel for plants) have a similar effect to money?

10 Ken January 29, 2010 at 11:45 am

Zamfir, I’m a little troubled when you write “While Real Business Cycle theory says that economic booms and busts are not features of the closed system…”

Does the theory say this because this is the observed behavior of the system? That is why biological models for predator-prey populations have cyclical or chaotic behavior: the actual populations do, which greatly limits the kinds of model biologists will use.

On the other hand, your remark could be read as saying that RBC theory takes its assumption as an axiom, rather than something observed from the behavior of the economic systems. That might make it easier to build the model, but it would mean that the model might not describe the real world.

11 Robert Bloomfield January 29, 2010 at 12:21 pm

The real difference between non-human and human ecosystems (and face it, our economy is simply a special case of an ecosystem) is that human behavior is far more sensitive to changes in anticipations of future states (which include future anticipations). This is what gives ‘animal spirits’ such power over an economy.

12 Michael F. Martin January 29, 2010 at 12:45 pm

I don’t know the answer. I do know that this gives me hope that some group (GMU?) will make progress.

13 Mr. Econotarian January 29, 2010 at 3:35 pm

I totally buy into Keynesian business cycles (although Austrian business cycles can certainly happen as well if the central bank is stupid).

What I don’t buy is Keynesian policy to mitigate cycles, for three reasons:

1) We may need the “boom and the bust” to ensure technological improvement. Certainly during the boom we are “searching” the world of the new opportunity, and while most of the searches fail, a few of the searches return useful improvements in business. The bust is the Schumpeteran creative destruction to eliminate the “dead wood”.

From a natural perspective, imagine a population boom that forces some of the population to move from one pond to another – and then that new pond is an awesome new environment that was unforseen (like my iPhone).

2) From a political perspective, government never truly saves during the boom. We have no problems spending during the bust, but it isn’t clear to me we have ever seen government truly saving much during boom times.

3) I don’t believe a government of human beings can properly identify a boom or bust a priori. Otherwise, why isn’t every Senator rich because they shorted Internet companies / housing stocks?

A boom bubble only exists because intelligent and informed people are unaware that it is a bubble. Otherwise, there would be no investment, and no bubble.

14 Matt Brubeck January 29, 2010 at 5:52 pm

The closest thing to a speculative bubble I can think is an evolutionary arms races, usually associated with mating. For example, male peacocks evolved their plumage to attract mates, even though it may hurt the male’s own ability to evade predators.

But I don’t know if biologists have studied any bubbles that have “popped” – that is, where an alternate “investment” strategy became enough of an advantage that the expensive mating signals died out.

15 Cyrus January 29, 2010 at 8:41 pm

You need a very simple ecosystem to get cyclic behavior. The arctic tundra provides it with the classic hare and fox population graphs. In more complex ecosystems, chaotic change and multiple equilibria are the norms.

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17 HCL130 January 30, 2010 at 4:58 pm

One example of a boom-bust phenomenon in nature, besides the predator-prey systems mentioned above, is eutrophication (the boom) followed by anoxic dead zones (the bust). Eutrophication is an increase in the concentration of chemical nutrients in an ecosystem to an extent that increases the primary productivity of the ecosystem. Although eutrophication is commonly caused by human activities, it can also be a natural process.

Here are two links:

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