Keynes talks a lot about confidence and the animal spirits of firms and people when making decisions. So how important is confidence to the economy?
Without confidence businesses wouldn’t invest. This can be seen in the present climate, many firms have a lot of spare cash on their balance sheets, which could potentially lead to high investment which would be a massive boost to the economy and would provide thousands of jobs. So why aren’t they doing so, they aren’t making any returns leaving their money in a bank account (in fact they may be receiving a negative real interest rate on their savings), the alternatives to saving money for firms is to either return it to shareholders in the form of dividends (which would result in the government gaining capital tax gains as well as stamp duty, and the investors are likely to either spend it or invest this money in other assets thus increasing their value) or to spend. [...]