Spiritus Animalius

Everyone agrees that helping small business is crucial

The senate is debating a bill that would create a $30 billion government fund to help small banks lend to small firms. Negotiations played out while President Obama visited a New Jersey sandwich shop and plugged for the package of loan guarantees and tax breaks designed to encourage small companies to hire.

It’s well-known that small businesses and new businesses do most of the hiring in a growing economy. That’s part of the reason America has always had such a dynamic economy: the rate of new-business formation is higher here than just about anywhere in the world.

But what’s really needed to get small businesses going again isn’t loans but animal spirits—a sense of optimism and élan that encourages individuals to risk their capital, their time, and their reputations on a new venture. Keynes coined the term 75 years ago as a way to describe how sentiment affects economic decisions

Without animal spirits, enterprise would collapse. Policy-makers debate how to encourage them, but if you really want animal spirits, you need animals: visionaries like Sam Walton or Sergey Brin to start the next Wal-Mart or Google. How to help? The best idea is to just get out of the way.

Douglas R. Tengdin, CFA
Chief Investment Officer
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