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Narrative Economics: How Stories Go Viral and Drive Major Economic Events

Robert J. Shiller

3.61 · Rating details · 1,014 ratings · 132 reviews

From Nobel Prize-winning economist and New York Times bestselling author Robert Shiller, a groundbreaking account of how stories help drive economic events--and why financial panics can spread like epidemic viruses

In a world in which internet troll farms attempt to influence foreign elections, can we afford to ignore the power of viral stories to affect economies? In this ...more

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Hardcover, 400 pages

Published October 1st 2019 by Princeton University Press

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Oct 07, 2019 A rated it did not like it · review of another edition

Shelves: economics, dnf

The author claims there is a need on economic theory to understand not only metrics, but narratives that create reality and affect economic decisions. I think this is the only point where we agree.

The first red flag for me is lack of references for Dawkins’ Memetics, nor Network and Web Science literature. Yes, epidemiology has been working on this for a long time, but there are at many other disciplines that have made important contributions to similar problems. The dismissal of those areas (in ...more

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Jan 06, 2020 Daniel Kenefick rated it liked it

Not bad, although I was hoping for a bit more of how economists (should?) study narratives, rather than a description of the narratives themselves. While it is interesting (and surprising!) to hear how ideas like anti-technological sentiment, the idea of basic income, anti-business and anti-labor sentiment have waxed, waned, and interacted over the years, this reads more like an economic history than the "new thing" in economics.

My favorite parts were the first part, where the author made conne ...more

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Oct 12, 2019 Teresa rated it liked it

Good if you haven't already read Shiller's many other books, such as Irrational Exuberance, where this information is already covered. Needs to take the next step and ground this hypothesis in some empirical testing. But as someone who has studied BOTH linguistics AND economics in grad school, I find the premise intriguing and well worth further research. ...more

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Apr 03, 2020 Chris Esposo rated it it was amazing · review of another edition

You can’t time/call booms/recessions of economies, or tops/bottoms in the stock market. Most economists, including Bob Shiller, would agree with this statement. Yet, ironically, it is exactly Bob Shiller who in the past 3 major recessions, including the forthcoming recession of 2020, who has presaged each recession either by releasing a book that anticipated trouble, and explained the cause of that trouble (“Irrational Exuberance” published in 2000), or was actively on news media warning of trou You can’t time/call booms/recessions of economies, or tops/bottoms in the stock market. Most economists, including Bob Shiller, would agree with this statement. Yet, ironically, it is exactly Bob Shiller who in the past 3 major recessions, including the forthcoming recession of 2020, who has presaged each recession either by releasing a book that anticipated trouble, and explained the cause of that trouble (“Irrational Exuberance” published in 2000), or was actively on news media warning of troubling signs of a future event (Shiller’s frequent appearance on CNBC and other pop-news channels, often put opposite with lesser real-estate economist, and often used as a comical punching bag of doom-and-gloom from 2005 - 2007). Now, through sheer luck, he has done a third time, with the book “Narrative Economics”.

To be clear, like Shiller’s other bestseller, “Irrational Exuberance”, “Narrative Economics” is not technically profound. In fact, on first reading, no one would be blamed on thinking that the whole premise of Shiller’s notions is supremely trivial. Yet, like with his previous book became profound when looked from the vantage of the 2001 dot-com bubble, this book put in context with what has now occurred at the time of writing this review (April 2020), with the Covid-19 pandemic, which has prefaced a larger economic downturn in the United States, and globally - perhaps a recession, possibly depression, Shiller’s choice of topic, and the manner in which he has characterized this topic, narratives as viral thought-memes has again made his writing seem preternaturally relevant and even elegant.

The notion to study ideas as “thought-memes” is not new. Dawkins and his students studied this idea several decades ago, and several books were published outlining their program. More recently, data scientists have spent the past decade mining social media data streams to analyze sentiment, and model human-interactions on the web, as well as to understand the broader sociology of individuals both on and off the digital platforms.

Shiller’s take thus can seem trivial or derivative in this respect. One almost gets a feel of “Grandpa discovering the computer” or H.W Bush discovering the barcode scanner for the first time in 1991 when Shiller discusses the mining of propublica to do counts on n-grams. Yet, whether this activity has been replicated by 1001 data scientists before him, what Shiller has brought to the table is an attempt to put formal structure on the investigation of these phenomena, and with the explicit intent of studying it for it’s own sake, as opposed to profit. Social scientists have derided data scientists for their cavalier methodology for close to a decade, ever since the field emerged as a nascent subject-matter in it’s own right. In this light, Shiller’s is one of the early cohorts of traditional social scientist attempting to bridge the y” two domains and extend the field of accepted academic economics into a domain that is totally foreign to it’s practitioners.

Shiller does not talk of utility curves or of price in this book. One could argue it is not a book about “economics” by the strictest formal definition. In a way, it could be thought of as a “meta-study” of economics, in that what Shiller suggest is that the key to understanding major events in an economy, so-called exogenous shocks from the parlance of traditional macroeconomics, one has to understand how it was that a large group of people (or a small group of very influential people) got into their mind the notion to do *something* that caused that shock. This is where the notion of the narrative comes into play. He takes a about a dozen cases in economic history, from classical to modern, from the notion of the “Laffer Curve” and “supply side economics”, the notion of the gold-standard, to the concept of AI-automation replacing labor, and shows in each case how the narrative seemed to have formed, and how this narrative seems to have impacted the real economy. This later part is achieved through the selective mining of the google n-grams in digital book facsimile records, where Shiller can mine at will all of the digitized content of the collective libraries of modern humanity.

If this activity seems trivial to modern eyes, it is only because anyone can conceivably do it. Yet most will never attempt to put much rigor in their approach with the tool or the content that Shiller has here. To be sure, he has not outlined any formal axiomatic system, nothing that would convince mathematical economists, much of this work can be described as a well-defined hunch on his part. Yet, the hunches, though apparently simple or manifestly trivial, have not been elucidated in a systematized way that I am familiar with prior to this writing. Though I will caveat this that I have not yet read the work of Dawkins et al on memes, so it is possible that a strain of research stemming from that germ may have outlined at least part of what Shiller has attempted here.

Instead of axioms, Shiller has forwarded 7 propositions on his narrative economics, which are heavily inspired on the science of epidemics. The first is that epidemics (and thus narratives) can be big or small, important narratives need not be known by the all (or most) people, and need only be known/accepted by a small number of important people well positioned to “move” the society (and thus the economy or vice-versa), a collection (or constellation) of narratives is more “robust” than a singleton narrative, the economic impact of narratives is not constant, objective truth is irrelevant with respect to narratives, contagion of narratives is dependent on the ability to repeat the narrative within the social medium, and finally, narratives thrive on human attachments, like human interests, nationalism etc.

Whether this set of propositions is what pans out in the end is not relevant, only that Shiller has “got the ball rolling” so to speak. However, because of the nature of this work, many will consider it nebulous. Yet, for those who are a bit more objective they will view this book for what it is, as a start of a new program of research in the field of economics. Just as formal economics did not start as what it eventually became (a sort of applied mathematical analysis of mostly non-pathological curves), narrative economics should be granted some leeway at it’s birth.

As an added bonus, anyone currently stuck quarantined and wanting to understand the nature of viral spread, can get a nice little bonus in the appendix of Shiller’s book where he outlines and defines clearly the SIR model, the most basic (and widely used) epidemiological model of viral spread. It can be directly applied to understanding (as a start at least) the nature of the Covid19-pandemic and the motivations for certain policies taken by most governments to impede that pandemics societal impact.

Shiller’s book is worth the read. Professional economists and investors will probably find little here to sate their expectations on a book written by a 2015 Nobel prize winner. Data Scientist might find it interesting, and may mistakenly view it as an old hat, if they don’t pay attention to the setup of the program Shiller is clearly trying to accomplish. For anyone else, who do not have the baggage of either the academy this book is a great organization of thoughts, and a interesting overview of economic history with respect to narratives and the events they influenced. Highly recommended. ...more

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Sep 16, 2019 Owlseyes marked it as to-read

Shelves: economy-stories-gone-viral

"I don’t know how he takes bad news; I think he denies it, he claims it’s a lie. I don’t know what he’ll do if the stock market were to crash now. What could he do? He would blame the Federal Reserve, that’s for sure.”

https://www.fnlondon.com/articles/rob...

https://news.yahoo.com/economist-robe... ...more

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Nov 25, 2019 Marks54 rated it it was amazing · review of another edition

Shiller is a Nobel Prize winning economist who is known for “behavioral economics”, an area of study that emphasizes the aspects of economics that have steered away from the much more common emphases of the field on high levels of focused goal directed optimizing behavior by smart decision makers with lots of information and knowledge of how to process that information.

The idea here is that economic decisions are not the result of human computers but more the result of more limited (bounded rati Shiller is a Nobel Prize winning economist who is known for “behavioral economics”, an area of study that emphasizes the aspects of economics that have steered away from the much more common emphases of the field on high levels of focused goal directed optimizing behavior by smart decision makers with lots of information and knowledge of how to process that information.

The idea here is that economic decisions are not the result of human computers but more the result of more limited (bounded rational?) individuals seeking to make sense of their world and make decisions on the basis of what they see and hear around them, even though that may be imperfect. Part of this involves various stories (most of an apocryphal nature) that individuals hear from others and pass on that have a bearing of decisions they wish to make. So far, so good. Everyone knows about different economic stories and it is intuitively clear that these bear some role in economic decisions.

But what role do they play? Cause? Effect? Correlate? Even the most connected of us encounter a limited number of people telling and listening to economic stories. How do I come to any conclusions about the importance of stories/narratives across an economic landscape with hundreds of millions of potential actors? How do I even come up with propositions about economic stories to test someday?

This is where Shiller’s wonderful new book comes in. He sets the stage by discussing various types of stories and the effects that they might have. But he is making use of data. Using data sets and apps like Proquest and Google Trends, Shiller provides and analysis of various stories that have gone viral/ trended since the late 1800s, making use of newspapers listings and other sources in the data set. Then he can match the trends he identifies with various important economic events (depressions, wars, changes in government policies, etc.) to suggest some conclusions that can be drawn about stories on the basis of this data base analysis. In the process, he identifies various patterns by which stories, drawing analogies to human epidemics.

The result is marvelous. For a variety of trends, for example concerning stories that technology will eliminate jobs, he identifies when such stories have appeared in the popular press and when they have not. You think that increased unemployment due to innovation is a new concern? Guess again. He does this for a wide range of various business and economic narratives. These results tie together a number of conclusions that many people may well have formed but did not how how to make us of. For example, I had a summer job during college (long ago) where I was cleaning the offices of an oil company regional HQ (long since moved). For breaks, I found myself reading very old copies of Oil and Gas Journal and found to my amazement that concerns over energy shortages were not new to the 1970s and the Mideast oil embargoes, but had a healthy history going back to when the oil industry as we came to know it was just getting established. Shiller does not discuss energy in detail, but this is the sort of conclusion that is present throughout the book on lots of subjects that people believe they are well informed about.

I rated this book highly because it lit up many more lights for me than I am used to in trade books in business and economics. I highly recommend it. It is very well written and not weighted down with the technical analysis one finds in many Economics books. In addition, Shiller’s discussion of methods, data, and analytic strategies is really sharp and worth examining in much more detail. ...more

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Dec 08, 2019 Kent Winward rated it it was amazing

Shiller's take on economics intrigues me and he greatly informed my views on finance/debt in The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It and Finance and the Good Society.

In his latest book, he takes behavioral economics into the realm of the society's behavior and the stories we tell ourselves about economics. This book is more of an outline of a theory that needs data and exploration, but the biggest takeaway I gained wasn't one that was explici ...more

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Apr 25, 2020 Drtaxsacto rated it really liked it · review of another edition

Robert Shiller is a first rate economist and writer. His Irrational Exuberance at the start of the 2000s was a landmark. His latest book argues that in order to understand what is going on in the economy one needs to understand the underlying narratives that we use to explain complex events. He suggests that these narratives ebb and flow over time and he tries to explain why some narratives become prominent and then disappear. He also suggests that competing narratives may become more prominent Robert Shiller is a first rate economist and writer. His Irrational Exuberance at the start of the 2000s was a landmark. His latest book argues that in order to understand what is going on in the economy one needs to understand the underlying narratives that we use to explain complex events. He suggests that these narratives ebb and flow over time and he tries to explain why some narratives become prominent and then disappear. He also suggests that competing narratives may become more prominent at the expense of competing counter-narratives. One of the things he does very well is to give some of the history of the issue - I did not know where the term Boycott comes from (hint it is a reference to a specific person). Those details improve the readability of the book.

He then uses a series of these stories to explain the concept - a prominent one is conspicuous consumption versus frugality. At times in our history we are exhorted to be happy about either frugality or consumption. He relies on a series of techniques including Google and ProQuest searches to understand how prominent a particular meme or narrative is at various times in our history.

At the end of the book, he presents a list of next projects, assuming that the field should grow. Some of his suggestions are a bit outside reality - but at least the founder of a new branch of economics can hope.

I had one minor quibble with his examples. He spends part of one chapter on the development of supply side theory in the 1970s and 1980s. The Laffer curve, which started the revolution is simple. It postulates that tax rates are on a rough upside down curve - and that at two points on the curve - taxes raised will be about the same. For example, a zero tax rate and 100% rate will raise the same amount of money. But Shiller then conflates that concept with one of the most extreme proponents of Laffer's ideas (Jude Wanninski) with the serious work done on the theory. To understand the power of the theory base one needs to look at documents like the Economic Report of the President early in the Reagan Administration which made much more defensible claims about what the tax cuts would accomplish. Based on books from authors like Larry Lindsay, a good deal of the original theory was confirmed in practice.

Even if Narrative Economics does not break out into a separate subfield of Economics - Shiller presents some interesting ideas to consider in explaining economic behavior. ...more

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Oct 27, 2019 Alja rated it it was amazing · review of another edition

The author invites us to look at major US economic events from the past two centuries not just as a simple mix of economic policies and indicators, but also in the light of prevailing economic narratives that spread virally throughout the population. The author establishes a link between the spread of economic narratives and epidemiology – the science of how diseases spread –, and a significant part of the book is dedicated to the historical analysis of the spread and various mutations of popula ...more

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Oct 22, 2019 Warren Mcpherson rated it liked it

Shelves: ideas, bookchain, people-at-work

An exploration of how common narratives relate to economic events and trends.
The book reviews narratives that coincided with economic upturns, downturns, wars, and hyperinflation. Several of the insights are quite interesting and show some of the differences between what we hear after the fact and what people were thinking at the time. As logical as these insights are they tend to be a little anticlimactic.
The book is intended to promote the idea of further study into connections between popular ...more

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Dec 09, 2019 Bianca added it

In theory, I love this book. It is so educational and I love how it goes against the standard economics we learn in school. Most of the time economics is based on the assumption that all people act rationally, which just is not true. I love the idea that popular narratives largely impact economic consequences. However, when I checked this book out, I forgot that this is an economic book. As interesting as it is, it reads quite like a textbook. I made it 6 chapters in (and really enjoyed the cont ...more

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Oct 15, 2019 Humberto Rd rated it liked it

Falls short of expectations considering all the hype it received before it was released.

It is good, but its is behind Irrational Exuberance and probably on par with Animal Spirits

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May 06, 2020 Daniel rated it it was amazing

This is a story about how viral stories change economic behaviour and therefore economies. Viral stories behave like actual viruses leading to ‘economic epidemics’, something we are all too familiar with during this Covid-19 period.

Anyways stories can be long or short, can be only discussed in certain circles, they need vivid images and a celebrity endorsement. Truth is not as viral as fake news.

So if everyone thinks Bitcoin will only go up, it will go up indeed. If everyone wants to save, the ...more

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Feb 11, 2020 Angie Boyter rated it it was ok

Shelves: sunday-philosophers

I became more and more unhappy and impatient with this book as I read it, and I looked up what I wrote about Shiller's book Phishing for Phools. I said there that the authors came across rather as old fuddy duddies. I think that may be true here also.
He has a rather good metaphor here and some good food for thought for economists.
There is enough for a long article or VERY short book , but the presentation is overdone, drawn out, and repetitive. There were some interesting factoids, like the fac ...more

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Aug 25, 2020 Bruno Badilescu rated it it was ok

He may be a winner of a Nobel Prize, but I’m sure he got that before writing this book. If he hadn’t, then he would’ve been laughed not just out of the contention for the prize, but off the entire Scandinavian peninsula where the Swedes decide who wins these things.

If you want to read the same sentence, in approximately 5740 different ways across 247 pages, then this is the book for you.

I found the appendix more diverse and informative than the actual content

Imagine if you will, two cavemen i ...more

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Dec 15, 2020 Kenji rated it really liked it

The author takes a look at economic narratives/beliefs through the lens of epidemiology. He posits that an economic story's virality, which may or may not have anything to do with how true the narrative is, can give it the power to shape the economy in major ways.
After explaining this perspective, the author then guides in seeing major economic events over the last hundred or so years through this perspective.

Overall, I think this book provides a very good picture of what his thesis is and how ...more

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Apr 02, 2020 Antonio Skarica rated it it was ok · review of another edition

Honestly, I couldn’t finish it. The overall premise is so clear, intuitive and easy to understand. Why Shiller spends 300 pages trying to make it seem like a novel idea, makes no sense to me. I’ve been a big follower of Shiller ever since I read Animal Spirits in college. He’s one of the most relevant economists of our time. Maybe that’s why such a clear idea would seem so mind blowing to him, as it stands out from mainstream economic models. But at the same time he’s been all about behavioral e ...more

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Jan 06, 2020 Justin Fanelli rated it really liked it

Different and excellent

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Feb 29, 2020 Neil Browning rated it it was ok

Economist justifies a vague concept using google ngrams.

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Jan 02, 2021 Masatoshi Nishimura rated it liked it

Shelves: history, economics

The book is full of anecdotal stories. You may find them interesting to follow. The premise of the book is to say economics has much human emotion and irrationality aspect.

As for me, I came through this book for a predictive value. For example, is coronavirus leading to depressive economics or government pumping in offsetting our negative emotion? How can I analyze that from reading "current" news objectively? To my disappointment, Robert doesn't offer that predictive toolset. ...more

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Jul 28, 2020 Mer added it

so it is political economy?

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Dec 23, 2019 Lorenzo Barberis Canonico rated it liked it

I liked the book (although it's not my favourite Shiller book by far) and it nicely connects to the concept of "narrative violations" in Silicon Valley (https://www.nytimes.com/2019/11/26/st...).

It makes sense given Shiller's behavioral focus in his most recent work that he would extend his analytical toolkit for bubbles to sociological epidemics of all kinds. The first half is the theory, the second half are the examples.

In the roundtable following his acceptance of the Nobel Prize, Shiller me ...more

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Dec 22, 2019 Marcel Santos rated it it was amazing

This book takes one topic its author had already slightly addressed in other works (I saw it in “Animal Spirits”, but have seen people commenting it is also present in “Irrational Exuberance”) and deepens the research on it.

In the book “Misbehaving”, Richard Thaler, one of the founders of Behavioral Economics (BE), had mentioned that he was missing more development of the study associating BE with Macroeconomics, once it is natural for BE to have a connection first with Microeconomics. So “Narra This book takes one topic its author had already slightly addressed in other works (I saw it in “Animal Spirits”, but have seen people commenting it is also present in “Irrational Exuberance”) and deepens the research on it.

In the book “Misbehaving”, Richard Thaler, one of the founders of Behavioral Economics (BE), had mentioned that he was missing more development of the study associating BE with Macroeconomics, once it is natural for BE to have a connection first with Microeconomics. So “Narrative Economics” goes further into the new and barely unexplored association between BE and Macroeconomics.

In this book, Robert Shiller uses a tool developed in medicine — studies on contagion in disease epidemics — to study contagion of narratives which will influence economic behavior.

The approach between disease epidemics and the spreading of ideas is not original, as the author points out. However, Shiller is the first to build this bridge with Economics - “consilience” is the name for such an intertwine among different areas of knowledge, when they approach the same issue.

Studies on economics are getting closer to Psychology, but are still making it by means of an external approach — the observation of the behavior —, rather than by going through the internal mechanisms by which one apprehends an idea (or get an infection), behave accordingly, and passes on to others.

Maybe the future of this tendency will be the complete merge between both fields - Economics and Psychology, also using more and more Artificial Inteligence. Psychology may start employing more mathematical and logarithmic models to gradually replace classical theory by statistical confirmation, in a way to predict behavior and help people overcome their issues and agonies. Economics on the other hand may break the barrier described above and start using deeper and more individualized, internal and subjective concepts of Psychology to predict behavior and economic outcomes.

In any way, the way towards unifying disciplines seems to advance. Perhaps with the joining of Sociology as well.

Just one thing I missed reference to was on psychology of masses. Certain ideas may be born in one person’s mind and then once divulged, disseminate. But oftentimes several people exposed to the same conditions will end up formulating them more or less at the same time. Then it would be just a matter of time who will be the first to express this idea in a way that reverberates. This facilitates a lot dissemination, or contagion as the author calls it. Sometimes the merit (or demerit) are all for the originator of the idea. However, sometimes the original idea is just the translation of feelings and ideas already disseminated but not expressed in a unified, organized way. In these cases, the pieces of information that compose the idea — or narrative — are already there in a great number of minds. What they need is just a push, someone or more than one who put them together in a way that translate so well people’s feelings or thoughts that they disseminate easily. This can also be studied or receive influence from studies on Intelectual Property, since it touches upon how new ideas and innovations are born. Though some of these ideas are put together and expressed in an organized way by one person first, the same ideas could already be present in other minds, maybe in a disorganized way, which facilities acceptance, modification of behavior accordingly, and contagion. ...more

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Nov 22, 2020 Maggie rated it it was amazing

This review has been hidden because it contains spoilers. To view it, click here. Narrative OED: "a story or representation used to give an explanatory or justifactory account of a society, period, etc." .."A story may also be...has emotional resonance and that can easily be conveyed in casual conversation" (xi)
I.
"An economic narrative is a contagious story that has the potential to change how people make economic decisions, such as the decision to hire a worker to wait for better times, to stick one's neck out or to be cautious in business, to launch a business venture, or t ...more

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Sep 30, 2019 Richard Marney rated it really liked it

This book is an important addition to the literature of behavorial economics.

We all remember our parents telling us, "that may have not been what you intended, but ultimately, 'perception becomes reality'". The seeds of a story (impression, interpretation, speculation, etc.) can metastasize into Shiller's "narratives" and influence or even drive macroeconomic events. Likening the spread of economic narratives to medical contagion, Dr. Shiller helps us understand better their transmission, recov ...more

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Dec 31, 2019 Etienne RP rated it liked it

The Narrative Turn in Economics: A review of Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events, Princeton University Press, 2019.

Scholars used to start their books or dissertations with definitions of key concepts taken from the dictionary. Now they use the Internet to provide trends in word patterns. Some words or expressions suddenly appear on social media or search engines and spread like wildfire. By going back in time into the print archive, it is no The Narrative Turn in Economics: A review of Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events, Princeton University Press, 2019.

Scholars used to start their books or dissertations with definitions of key concepts taken from the dictionary. Now they use the Internet to provide trends in word patterns. Some words or expressions suddenly appear on social media or search engines and spread like wildfire. By going back in time into the print archive, it is now easy to track the appearance, diffusion, and eventual demise of popular expressions. It is also possible to do the same for stories that circulate on the Internet. Economic expressions like “recession” or “irrational exuberance” correlate with economic events: they are embedded in a context that they both reflect and contribute to shape. The diffusion of these stories or word combinations follows a hump-shaped curve. They appear rather anonymously and grow in the margin until a random event or fortuitous circumstances cause them to spread exponentially. Their moment of fame is short-lived, however. Soon they fall back into oblivion and remain marginal, until a new event or a deliberate attempt gives them a new lease of life.

How stories go viral

The natural metaphor that comes to mind to describe the diffusion of these narratives or word patterns is taken from the medical science: stories are like contagious epidemics or infectious diseases, and spread in the social body like germs or viruses. The expression “to go viral” has itself gone viral to describe a piece of information that spreads rapidly through a population by being frequently shared with a number of individuals. The path of epidemics follows a curve that can be modeled with relatively few parameters. The target population can be divided into three compartments: disease-carriers or infectives, people who haven’t had the disease and are susceptible of getting it, and people who have recovered from the disease and have acquired immunity. The speed of the contagion depends on two parameters: the contagion rate, or the risk of infection each time a susceptible person meets an infective person, and the recovery rate for infected persons who get cured from the disease. With some adjustments, this epidemiology model (known in the medical literature as the Kermack-McKendrick model) can be applied to economic narratives. It provides a workhorse model that Robert Shiller uses in his book to delineate a new domain in the discipline: narrative economics.

Should economists be concerned about these circulating narratives? Economics deals with measurable variables and objective phenomena, not opinions and discourse. For standard economics, what matters is how people respond to incentives, not the arguments with which their frame their decisions. They may invoke sentimental attachments or moral reasons, but the economist is well justified to consider only their material interest or the profit motive. Stories are fickle and spread randomly; they may distract the researcher from identifying underlying trends and causal chains. Or do they? Robert Shiller strongly disagrees with these arguments. For this Nobel Prize winner best known from his analysis of the U.S. housing market bubble, narratives matter, popular stories have economic consequences, and background conversations can have an impact on macroeconomic trends. He gives many examples of contagious stories that may have affected the behavior of economic agents and the business cycle. Financial crises spread alongside headline stories and wild rumors that have a strong psychological component, inducing panic or renewed confidence. Expectations about falling prices and the moral stigma attached to war profiteers may have engineered the 1920-21 economic depression by encouraging households to delay purchases and companies to postpone profits. Franklin Roosevelt’s “Buy Now Campaign” in 1933 convinced Americans that raising consumption was a patriotic thing to do. Inflation in the 1970s did not only increase the cost of living: it made people angry and willing to put the blame on some segment of society, either labor unions or businesses.

“Shouting fire in a crowded theater” and “fire sales”

The focus of narrative economics is much broader than economic narratives. Robert Shiller gives many definitions of the word “narrative”, and illustrates it with many different examples. Sometimes a narrative is only a quote (the phrase: “the only thing we have to fear is fear itself” was made famous by Roosevelt’s inaugural address, although he wasn’t the first to pronounce it), other times it is a book or a movie (The Grapes of Wrath), yet other times a picture (Dorothea Lange’s photographs of the Great Depression) or charts and indexes (the unemployment rate; the Laffer curve). The author is able to track the origin of particular stories that have become standard expressions. The “man shouting fire in a crowded theater” narrative, used to illustrate the contagious effect of bank runs, goes back to a real news story that later was picked up by Justice Oliver Wendell Holmes in a Supreme Court decision. Similarly, the term “fire sale” has been around since the nineteenth century to describe firms selling smoke-damaged merchandise at cut-rate prices in the aftermath of a fire. Beyond these particular tidbit stories, Shiller identifies perennial economic narratives that recur through time in various mutated forms. These narratives form constellations of stories that illustrate a same basic point or idea and that reinforce one another’s contagion. Nine of these recurring narrative constellations are analyzed in separate chapters of the book, with illustrations taken from the United States’ economic and financial history: “Panic vs Confidence”, “Frugality vs Conspicuous Consumption”, “Labor-Saving Machines Replace Many Jobs”, etc.

As an economist, the author is himself a provider of narratives. Robert Shiller opens his book with the stories revolving around Bitcoins, and he clearly wants his book to be reminded for having forecasted the burst of the Bitcoin bubble— his first book Irrational Exuberance, published at the height of the dot-com boom, predicted imminent collapse, and he also announced the collapse in the U.S. housing market well before the 2008 crisis. He doesn’t hide his Keynesian leanings—he identifies John Maynard Keynes as the first narrative economist—and wants to turn the Reagan era of supply-side economics into a story of “voodoo economics”, with the Laffer curve as the egregious poster child of snake-oil theorizing. Although he calls for interdisciplinarity and “consilience” (the straddling of academic disciplines), he remains firmly grounded in quantitative economics, and his borrowing of epidemiology models mostly serves his ambition to provide a measurement of the narrative landscape akin to the consumer confidence index. His random walk through U.S. economic history lacks the rigor and methodology of the professional historian, and his use of literary tools such as narrative analysis or semiotics is suggestive at best.

Gold bugs are not dead

Narratives are contagious, and Shiller’s economic narratives encourage the reader to think about his or her own stories. In particular, there are many narratives around money, perhaps because the nature of money itself is difficult to grasp. Shiller comes up with his own stories: the narrative of Bitcoin, with the advanced math algorithms and the mysterious figure of Satoshi Nakamoto, but also the nineteenth-century debate between the Gold Standard and bimetallism, mostly remembered through the “Cross of Gold” speech by presidential candidate William Jennings Bryan. We are reminded that President Donald Trump has repeatedly advocated a return to the gold standard, which places him among the “gold bugs” that still dwell in the dark corners of financial markets and are fond of conspiracy theories—one such story identifies the Federal Reserve System with “the creature from Jekyll Island,” after a secret meeting of bankers off the coast of Georgia to write a plan to reform the nation’s banking system in 1910. Indeed, the author could have paid more attention to the conspiracy theories and cabalistic tales that are proliferating on the dark side of the Internet and that provide a backdrop for recent economic events. The European Union, and the euro in particular, have often been the victims of such pernicious attacks: it is no wonder that President Trump, himself a frequent carrier of conspiracy narratives, has been acting as the relay of such criticisms.

Shiller’s list of narrative constellations do not cover the full landscape of economic narratives. In particular, he neglects the ongoing narrative of climate change and ecological shift. It is a narrative with considerable economic consequences: indeed, it may be the defining story of our times, or even the master narrative of the whole of human history, summarized by the word “anthropocene”. I suspect Shiller’s reluctance to address the issue has to do with the controversial nature of climate policy in American circles, where many disparage scientific evidence as, simply, “narratives” or made-up stories. Also lacking in his presentation of narrative economics is the consideration of countries other than the United States. Economic debates are often framed by stories about particular countries, from the “growth miracles” of East Asia to the failed states of the developing world. Recently, Dani Rodrik has tried to put some rigor on these “growth narratives”, shedding light on some of the growth puzzles of the past few decades—from the meteoric rise of China to the exceptionalism of African star performers such as Botswana and Mauritius. Success stories or tales of persistent failure circulate and inspire reformers around the world: the narrative of Singapore’s stellar growth path has inspired countries as diverse as China and Rwanda. By contrast, narratives originating in the United States are losing traction: they do not dominate global conversations the way they used to do during what has been labelled as the American Century.

Tell-tale tails

Can we speak of a narrative turn in economics? Robert Shiller presents the emerging subdiscipline of narrative economics as the new frontier in economics. He gives hints for future research, identifying data collection and analysis as a key challenge. As he advocates, “We need to incorporate the contagion of narratives into economic theory. Otherwise, we remain blind to a very real, very palpable, very important mechanism for economic change, as well as a crucial element for economic forecasting.” The methodology of narrative economics remains fraught with difficulties—the epidemiology models provide only a crude approximation of social contagion—, but in the age of big data and machine learning, new methods may be developed to make sense of the huge mass of information that is accumulating on social media and the Internet. Economics theory itself is making heavy use of narratives: economic models are really stories, and good economists have always understood this. Keynes put it very eloquently: “Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant.” Ultimately, economic models gain acceptance more through plausibility and persuasion than through falsification or empirical testing. Narrative Economics tells a compelling story of what the future of economics should be like. ...more

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Feb 02, 2020 Nael rated it really liked it

This review has been hidden because it contains spoilers. To view it, click here. It was ok. I was honestly expecting more. Shiller focused most of the book on the narrative of the great depression and recession after WWI. I understand that in order to make a good argument, one should study a volatile time period (depressions, recessions, or secular stagnation), narratives, as he explained it, are sometimes the culprits for "why" economic change takes place, he argues we should separate the cause versus what is a consequence between narratives and economic events. As expected ...more

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Jun 27, 2020 X Li rated it really liked it

Shelves: sabbatical-reading

Adam Smith is often credited as the father of modern economics. His book, the Wealth of Nations is cited as having laid the foundations for a discipline based on using reasonable incentives to make decisions of a social nature. And as we cite his notion of markets working by the mechanisms of an "invisible hand", we are in fact acknowledging the contributions of (though few of us can honestly claim to have read the full-text) his earlier work: "The Theory of Moral Sentiments". That the scope of Adam Smith is often credited as the father of modern economics. His book, the Wealth of Nations is cited as having laid the foundations for a discipline based on using reasonable incentives to make decisions of a social nature. And as we cite his notion of markets working by the mechanisms of an "invisible hand", we are in fact acknowledging the contributions of (though few of us can honestly claim to have read the full-text) his earlier work: "The Theory of Moral Sentiments". That the scope of economics, or social science in general, extends beyond equations, mathematical formulas and statistics, should not be a surprise to anyone who reads publications such as the WSJ, FT or The Economists. Nor should it be a surprise that students spend inordinate amounts of time learning the conceptual and analytical tools and methods (yes, the models) which undergird economics as a discipline.

Narrative Economics is a book which challenges the premise that economics, or more broadly those drawn to its concepts and models, necessarily understand the technicalities or limitations of the tools they use. Popular economics is as much an art as an science, as much about marketing as analytics, and as much about the evolution of ideas as it is about establishing immutable facts. This dynamic produces a series of mind-trips to the tune of "where have I heard this story before", which Shiller tackles in section III on perennial narratives. If what is old is new again, is irrational exuberance the antidote to warding off the creep of been-there-done-that cynicism? History has circular patterns - and in reality, the wheel was in fact reinvented again and again.

The book is enjoyable to read for the series of anecdotes (more illustrative of human behavior and psychology) on topics as wide ranging as the adoption of suitcases with wheels (!), the simple logic behind the Laffer Curve, the metaphor of the gold standard, the universal in UBI, and why many proponent of labor stopped supporting labor unions. To paraphrase a key proposition of the book: narratives catch on, some fast, some slow. For those interested in approaching the current state of the economics field from more traditional foundations, Economics Rules by Dani Rodrik provides a good introduction that is also highly readable. ...more

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Dec 01, 2020 Weshb rated it liked it

40 years ago, when I was a young antitrust attorney for the Federal Trade Commission and then the US Senate Judiciary Committee, I would get into the same, old argument with the economists on staff: whether humans were really "rational utility maximizers" or at least partially irrational agents, swayed by advertising, peer pressure and other non-calculable influences. The economists would routinely shrug or eyeroll over the notion that there was anything about human behavior that could not be ca ...more

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Jul 04, 2020 Marko Cadez rated it it was amazing

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NARRATIVE ECONOMICS by Robert Schiller
Here we are with new great book. There is a new term you "must know about" in order to navigate turbulent downturn of economic theories and it's: CONTAGION. After economical theorists being stuck explaining people irrational behavior in pure metrics and numbers there is a new "going beyond" masterpiece of Nobel Prize-winning economist Robert Schiller. NARRATIVE ECONOMICS opens the issue of stories that, in complex cumu ...more

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About Robert J. Shiller

Robert J. Shiller

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Robert James "Bob" Shiller (born Detroit, Michigan, March 29, 1946) is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management. Shiller has been a research associate of the National Bureau of Economic Research (NBER) since 198 ...more

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“Trying to understand major economic events by looking only at data on changes in economic aggregates, such as gross domestic product, wage rates, interest rates, and tax rates, runs the risk of missing the underlying motivations for change. Doing so is like trying to understand a religious awakening by looking at the cost of printing religious tracts.” — 1 likes

“We need to incorporate the contagion of narratives into economic theory. Otherwise, we remain blind to a very real, very palpable, very important mechanism for economic change, as well as a crucial element for economic forecasting. If we do not understand the epidemics of popular narratives, we do not fully understand changes in the economy and in economic behavior.” — 1 likes

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