Robert Shiller’s book, Narrative Economics: How Stories Go Viral & Drive Major Economic Events is an essential read for anyone who wants to understand how viral stories impact economies and public policy. By looking at specific events and news coverage prior to and during economic depressions, Shiller makes a clear case that the irrationality of human emotions has far greater impact on economic events than what traditional economists want to admit. Importantly, most of his examples are not based on Internet memes or viral videos, but are pulled from newspaper articles from the 1920s and 1930s in the lead-up to the stock market crash of October 1929. This isn’t a book about social media and the way it plagues society. It’s a historical look at how people’s fear and aspirations change economic events.
Below are fourteen quotes from the book that stand out:
- “Narrative economics, the study of the viral spread of popular narratives that affect economic behavior.” Pg. 3
- “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 or to wait for better times, to stick one’s neck out or to be cautious in business, to launch a business venture, or to invest in a volatile speculative asset.” Pg. 3
- “Consilience…When one reflects that the economy is composed of conscious living people, who view their actions in light of stories with emotions and ideas attached, one sees the need for many different perspectives. Narrative economics therefore requires concepts from most university departments.”pg. 12
- “For most people the narrative will be fundamental to their reasons for doing, or not doing things that affect the economy.” Pg. 26
- “If we want to know why an unusually large economic event happened, we need to list the seemingly unrelated narratives that all happened to be going viral at around the same time and affecting the economy in the same direction.” Pg. 29 – Constellation of narratives.
- “Humans have a storytelling instinct – it’s even reflected in how we dream.”
- “Narratives are human constructs that are mixtures of fact, emotion, human interest, and other extraneous details that form an impression on the human mind.” Pg. 65
- “Improve people’s ability to anticipate and deal with major economic events, such as depressions, recessions, or secular (that is long-term) stagnation, by encouraging them to identify and incorporate into their thinking the economic narratives that help to define these events.” Pg. 71
- “Trying to understand major economic events by looking only at data on changes in economic aggregates, such as gross domestic products, 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.” – Tyranny of metrics.” Pg. 75
- “Marcel Machill and his coauthors, noting evidence that viewers of television news retain little of the news they hear, presented an actual TV news report on the dangers of air pollution to a control group. They also presented a variation of the report to the experimental group in the form of a story with a protagonist, a baker with health problems caused by air pollution, in an unfair struggle against antagonists who benefitted from the polluting activities. The experimental presentation of the news was retained better.” Pg. 77
- “As narratives spread about the dangers of business losses and decreased consumer confidence, increasing self-censorship of narratives may, and sometimes does, encourage panic. Because people are aware that others self-censor, they increasingly try to read between the lines of public pronouncements to determine the ‘truth’.” Pg. 115
- “Suggestibility… The idea that the human mind is susceptible is diametrically opposed to the concept of economic man who is a rational optimizer, who acts as if guided by careful calculations.” Pg. 120
- “Machinery saves labour in a given process; one man replaces ten. A certain number of these men are needed to build and service a new machine., but some of them are permanently displaced…. If purchasing power has reached its limits of expansion because mechanization is progressing at an unheard of rate, only unemployment can result. In other words, from now on, the better able we are to produce, the worse we shall be off. Even if the accelerating factor has not arrived, the misery of normal unemployment continues unabated. This is the economy of the madhouse.” Pg. 185
