Shiller and Rogoff: Animal spirits have been lost

Nervousness and fear have taken control of the U.S. economy, leading to low investment amid a growing sense of inequality, economics professors Robert Shiller and Ken Rogoff have told CNBC.

"It's amazing how lackluster investment is at this point in history and it's a sign of some loss of 'animal spirits'," Nobel prize-winning economist Robert Shiller told CNBC at the World Economic Forum.

"There's definitely a nervousness, because it's not only low investment, it's at almost record low interest rates," he added.

"Animal spirits" is a term coined by John Maynard Keynes to describe the confidence to invest or spend.

U.S. public investment has suffered in the past years and a 20-year bull run in the fixed-income markets has been accentuated by liquidity injected into the economy by the U.S. Federal Reserve since the financial crash.

Longer-dated yields on sovereign bonds for many countries are now at record lows, and is a sign that fear had taken hold in asset markets, according to Ken Rogoff, an economics professor at Harvard University.


"Well I think there is still a lot of residual nervousness after the financial crisis, what's going to happen next. I think there is still a big overhang," he told CNBC at Davos.

Shiller added that he is constantly worried that a bubble could burst in both the equity and bond markets with what he called "very high asset prices." Rogoff added that low yields were also a sign that people are losing faith in the ability of central banks to keep inflation rates at desired levels.

Responding to President Barack Obama's State of the Union speech Tuesday night, Shiller said the U.S. public was maybe ready for the message that inequality is a big problem for the country.

Obama spoke of the success of "middle-class economics" in his address, where "everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules." He also highlighted plans to try to slow the widening gap between the richest and poorest in America.

Despite Obama's speech, Shiller believes that the U.S. wouldn't make a "major correction" from its current course. He added that Obama could "affect the drift" of U.S. policy, but said that the problem is not going to be solved in the next two years or anywhere near that time frame.

Rogoff added that the speech was more about Obama's "vision for the world" and how he wanted to be viewed in history. Obama asked for a broad package of reforms in his annual address to lawmakers, with Congress now being led by the Republican Party. Rogoff said that Obama wasn't speaking directly to Republicans but was more concerned with the evolution of his own Democratic Party and the next U.S. elections.

"If he was (speaking to the Republican Party), they weren't listening," he told CNBC.