Animal spirits. That is what the fierce discussions in many countries about the best COVID-19 policy, the best policy to combat climate change or, in general, anything that divides people, remind me of. Recently, in the Netherlands, France, and Belgium protests against new COVID-related restrictions culminated in violence. These explosions of violence may be a far cry from the gut feeling Keynes was talking about, but the underlying idea is the same: trust, or rather, the lack of it.

Trust is a slippery, multi-faceted beast. First, there is basic trust, a key condition for a well-functioning society: being able to rely on each other or the government without contracts, despite having different values. Basic trust in each other is greasing the wheels of society: it makes adapting a society to change easier, makes it more resilient.

There is also trust in the sense of believing in each other or counting on each other based on contracts or comparable values. This is what we call confidence, and which is based on knowledge, custom or shared experience, whereas trust is needed when these are lacking, for example when behaviour cannot be predicted or when total strangers are involved. And finally, there is the economic idea of ​​trust: the flat approach to trust as 'sentiment', ultimately dependent on rational developments that can be explained economically. If consumer or producer sentiment goes up, forecasters interpret this as a leading indicator for more consumption or investments. To be clear: this is not what Keynes meant with animal spirits. His idea was about gut feeling that often determines human actions. If those animal spirits go in a different direction, we may just end up in a different equilibrium than can be explained rationally. These three forms of trust cannot exist without each other, but as always, it starts with the basics.

In most Western countries, these different meanings of trust are often blurred. This may seem stranger than it actually is; relatively stable democracies are supported by stable groups who trust each other and their institutions. In many of these countries, however, groups have become more fragmented, politics more polarized, and extreme wokeness of identity has led to a cancel culture. And thus it appears that the basis is not so stable at all.

It does not strengthen confidence that policymakers in recent years have increasingly based their policy choices on opportunism rather than on well-founded considerations.

What also doesn't help is inequality. In societies with large social and economic differences, trust in each other is demonstrably lower. More inequality often leads to corruption, or less obvious, big business-friendly policies at the expense of ordinary people. In any case, inequality leads to different interests and less interconnectedness.

What also does not help is polarization in politics. Both left- and right-wing populists have gained in many countries and are more vocal. This makes it hard to hear the more nuanced opinions in the middle.

Trust and transformation

As it has universally become clear that our current system exceeds both our planet’s environmental and social boundaries, we urgently need to transform it to make it more sustainable and more inclusive. Yet an essential element of any transition or transformation is trust: trust in institutions, trust in the fact that change will deliver a better future for all. Our recently published Investment Outlook deals with relevant questions about trust: Will the trust in central banks and fiscal authorities remain firm, even if they have to take the foot of the accelerator they used to deal with the Pandexit? And can we achieve an important transition, such as the energy transition, and rebuild the global economy on a sustainable foundation?

In the end, it is not about the rational numbers, but about spirits of trust that can bring us a more sustainable society.

This is an adaptation of Hans Stegeman's column in Het Financieele Dagblad, published November 30th, 2021.