Narrative Economics by Robert Schiller

Narrative Economics by Robert Schiller

Why stories make your future

The Rise of Narrative Economics

Stories run the world. At least they help us make sense of it. They’re one of the primary means by which knowledge is transferred through time. We are who we are because of the stories we share.

This is becoming more evident as our (social) media becomes increasingly pervasive and ubiquitous in our lives. The amount of information, knowledge, and perspectives we have access to is growing, and this is creating opportunities to become more aware of the power and role of narratives.

I think we notice this most when we are exposed to new stories, but in particular when we find stories that strike us as absurd, and yet are deeply held by others. Like the story about how the earth is flat. Or the one about George Soros controlling the world. Or the many ridiculous stories that surround the current President of the United States.

It is no coincidence that the rise of narrative economics is occurring at a moment when the storyteller in chief of the United States offers a set of narratives so at odd with the existing narrative establishment:

 

 

Narrative economics is the acknowledgement that the economy as we know it is just a set of stories we tell each other. Reality is subjective. Truth is negotiated. And the economy is a product of that negotiation, as reflected in the stories we agree with and share.

Nobel Laureate Robert Shiller has a new book out titled Narrative Economics, and he’s been actively promoting the book and the concept. He rightfully points out that many other scholarly disciplines had figured out the importance of narrative in human experience, and economics is late to the party.

“Not everyone is equally proficient at understanding narratives, and economists are among the worst at appreciating them.”

 

What initially caught my interest in Schiller’s work was his argument that some narratives continue to dominate our perception of economic reality, often without evidence.

 

One of the hooks that Shiller is using to capture people’s attention is to connect narrative economics to the concept of memetic virality and the phenomena of going viral. What causes some stories to spread and stick faster than others?

 

Shiller is particular interested in how the current political and technological climate makes it easy for false narratives to outperform others:

 

There is substantial evidence that if an atmosphere filled with lies or presumed lies spreads throughout a society, the effect might reduce economic growth rates. Years of incremental damage would result in a substantially lower level of economic well-being than would otherwise have existed.

I do find it encouraging that economists are starting to appreciate the role stories play in the shaping and governance of society. Granted this may be in response to the dissenting narrative that currently occupies the White House, however I think it is also in response to the unraveling of technology narratives that we’ve been covering in this newsletter.

 

But a narrative of innovation that omitted the role of the state was exactly what corporations had been deploying as they lobbied for lax regulation and low taxation. According to a study by Mazzucato and economist Bill Lazonick, between 2003 and 2013 publicly listed companies in the S&P 500 index used more than half of their earnings to buy back their shares to boost stock prices, rather than reinvesting it back into further research and development. Pharmaceutical company Pfizer, for example, spent $139bn (£112bn) on share buybacks. Apple, which had never engaged in this type of financial engineering under Jobs, started doing so in 2012. By 2018, it had spent nearly one trillion dollars on share buybacks. “Those profits could be used to fund research and training for workers,” Mazzucato says. “Instead they are often used on share buybacks and golfing.”

The paradox is that as economists begin to understand the role that stories play, they may also find themselves questioning the stories that have governed their field as a whole:

 

Economic theory as it exists increasingly resembles a shed full of broken tools. This is not to say there are no useful insights here, but fundamentally the existing discipline is designed to solve another century’s problems. The problem of how to determine the optimal distribution of work and resources to create high levels of economic growth is simply not the same problem we are now facing: i.e., how to deal with increasing technological productivity, decreasing real demand for labor, and the effective management of care work, without also destroying the Earth. This demands a different science. The “microfoundations” of current economics are precisely what is standing in the way of this. Any new, viable science will either have to draw on the accumulated knowledge of feminism, behavioral economics, psychology, and even anthropology to come up with theories based on how people actually behave, or once again embrace the notion of emergent levels of complexity—or, most likely, both.

Intellectually, this won’t be easy. Politically, it will be even more difficult. Breaking through neoclassical economics’ lock on major institutions, and its near-theological hold over the media—not to mention all the subtle ways it has come to define our conceptions of human motivations and the horizons of human possibility—is a daunting prospect. Presumably, some kind of shock would be required. What might it take? Another 2008-style collapse? Some radical political shift in a major world government? A global youth rebellion? However it will come about, books like this—and quite possibly this book—will play a crucial part.

Economics needs to be reunited with politics, as political economy historically did possess the understanding of narratives that the isolated field of economics is only now rediscovering.

While the work necessary to reshape our understanding of power and money seems daunting, there is hope in the growing awareness of stories and their power.

This is why I embrace the future and play with the concept of futurism. The future is inherently a political economic story we make up to map out a path to that future. We imagine it in hopes of having a chance of finding it. #metaviews

 

Finally I like to end these issues by offering some kind of multimedia that allows you to dive deeper into the subject while also being entertained.

What stories do you think best represent the current configuration of our economy? Robin hood? The emperor wears no clothes? Monty Python’s Holy Grail?

(This article originally appeared November 26, 2019 in Metaviews)