Robert Shiller: A recession that could discredit Trump looms large

via TIME:

Nestled in an armchair in a high-ceilinged London reception room, the Nobel laureate Robert Shiller is asking me about the Streisand Effect. The term is used to describe a phenomenon whereby an attempt to remove a piece of information from the Internet actually has the opposite effect — bringing it to greater attention. It’s named after the actor Barbara Streisand, who tried to remove online pictures of her beachfront home, only for them to be shared more widely. Shiller, an economist who shared the 2013 Nobel Prize for his work on asset prices, has never heard the term before, and as I explain he leans forward, excited. “That’s a narrative!” he exclaims. He’s fresh from addressing a roomful of economists and policy wonks about his new book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events. He spoke to TIME about the book, the odds of a recession, and the trade war with China.

What is narrative economics?

I define narrative economics as the study of popular stories that are economically relevant, that have a moral, that are a lesson that people will take heed of in their economic decisions.

You write that these narratives can and do shape the economy. Can you give me an example from the past of how a narrative has caused a recession?

The narrative that comes to my mind for the 2007 through 2009 recession is the housing narrative. There were a lot of people “flipping houses.” That was a new term. And the idea that home prices have always gone up was encouraged by the stories of people making a lot of money selling houses in that environment. There wasn’t much attention to the history of price declines. There was no counter-narrative.

How have economists failed to understand narratives in the past?

A lot of them do understand them, but they haven’t thought they were worthy of entry into their pronouncements. The problem is, as an economist you can’t rely on what people tell you on the street. But sometimes it does have real relevance. The problem is we don’t have the right kind of survey data. We have confidence indexes, but they are based on surveys which ask people for their outlook in quantitative terms, without asking about the story that is motivating them.

The ‘inverted yield curve’ has been in the news recently. Do you think the notion that it always precedes a recession is a ‘narrative’?

Yes. There’s a chart showing inverted yield curves, followed by recessions. So maybe people remember that visual stimulus. It’s very direct. People have memories of seeing it on the news in decades past. Now it has exploded and people are talking about it everywhere. I’m afraid that it will bring about a recession because if you think a recession is coming, your probable actions will be to reinforce that.

 

 

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