Since at least 1936, when John Maynard Keynes talked about the importance of “animal spirits,” economists have reckoned that optimism matters for the economy.
But if you set about trying to prove that’s actually true, you quickly confront a frustrating chicken-and-egg problem. Is the economy doing better because people are more upbeat? Or are people more upbeat because the economy is doing better? New research from Vidhi Chhaochharia, George Korniotis and Alok Kumar at the University of Miami aims to sort it out.
The key to measuring how optimism affects the economy, the economists surmised, was to find instances where it’s clear that people’s outlook has improved for reasons outside of the economy. One candidate: Better weather, which medical research has shown lifts mood-boosting serotonin levels, and which economic research has shown boosts stock market returns.
Looking across the country, they found that when a state’s weather was better than its usual norm “economic recessions are weaker, expansions are stronger, and the economic recovery is faster.” (This result held up even after they made adjustments to make sure that they weren’t picking up ways that weather can directly affect the economy, like boosting construction activity.) Optimism mattered most in states with less educated and older workforces, suggesting that either the more sophisticated, younger set is less prone to letting their mood get in the way of economic decision making, or that the weather doesn’t matter as much to them.
The economists also looked at two other mood enhancers: Having the political party you support come into power and having a winning sports team. The results were similar, but somewhat weaker.
The upshot is that as a matter of policy, it might be a good idea for states to come up with ways to make people more upbeat. Like giving everybody a cupcake. Or passing out superhero capes.
“Of course, we do not prescribe that state governments should subsidize the sale of mood-enhancing drugs to uplift people’s mood and invigorate the local economy,” the economists write.
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