Institutional Real Estate, Inc.

NAREIM Dialogues: Spring 2017

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

Issue link:

Contents of this Issue


Page 3 of 35

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 2 ANIMAL T he phrase "Animal Spirits" is attributed to John Maynard Keynes, perhaps the most influential economist of the 20th Century. In his 1936 The General Theory of Employment, Interest and Money, Keynes posits that many of our decisions are driven by "animal spirits— a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." 1 Referenced by writers as diverse as Thomas Hobbes, Jane Austen, and Arthur Conan Doyle, animal spirits as a driver of economic expansion is based on Keynes' usage. It describes both a basis for optimism through increased risk taking, as well as for concern from excess exuberance. Forty years after Keynes' magnum opus, scientists were attempting to explain the enormous gaps in the fossil record that seemed to contradict the continuous and gradual evolutionary change at the species level assumed by Charles Darwin. Stephen Jay Gould and Eldridge Niles suggested that biological change does not occur on a regular but on a mostly discontinuous manner with long periods of stasis punctuated by large change during shorter periods in geologic terms. They coined the phrase "punctuated equilibrium" to describe their theory, which has become very influential in evolutionary biology. 2 The theory reflects our common sense impression that during long periods of time little changes and then everything appears to change at once. Following the surprises of 2016—from Brexit to the US presidential election—the two metaphors of animal spirits and punctuated equilibrium provide a description of recent events. After initially falling after the November elections, the US equity markets have soared to a long series of new record levels. This climb has continued into 1Q and interest rates have increased, reflecting higher growth and inflation expectations. Heightened growth expectations did not follow from the disappointing 4Q

Articles in this issue

view archives of Institutional Real Estate, Inc. - NAREIM Dialogues: Spring 2017