narrative economics

Robert J. Shiller
narrative economics
How Stories Go Viral & Drive Major
Economic Events
princeton university press
princeton & oxford

Copyright © 2019 by Robert J. Shiller
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ISBN 9780691182292
ISBN (e-book) 9780691189970
Version 1.0
British Library Cataloging-in-Publication Data is available
Editorial: Peter Dougherty and Alena Chekanov
Production Editorial: Terri O’Prey
Text Design: Leslie Flis
Jacket Design: Faceout Studio

Contents
List of Figures  vii
Preface: What Is Narrative Economics?  ix
Acknowledgments  xxi
Part I   The Beginnings of Narrative Economics
1  The Bitcoin Narratives  3
2  An Adventure in Consilience  12
3  Contagion, Constellations, and Confluence  18
4  Why Do Some Narratives Go Viral?  31
5  The Laffer Curve and Rubik’s Cube Go Viral  41
6  Diverse Evidence on the Virality of Economic Narratives  53
Part II   The Foundations of Narrative Economics
7  Causality and Constellations  71
8  Seven Propositions of Narrative Economics  87
Part III   Perennial Economic Narratives
9  Recurrence and Mutation  107
10  Panic versus Confidence  114
11  Frugality versus Conspicuous Consumption  136
12  The Gold Standard versus Bimetallism  156
13  Labor-Saving Machines Replace Many Jobs  174
14  Automation and Artificial Intelligence Replace Almost All Jobs  196
15  Real Estate Booms and Busts  212
16  Stock Market Bubbles  228

17  Boycotts, Profiteers, and Evil Business  239
18  The Wage-Price Spiral and Evil Labor Unions  258
Part IV   Advancing Narrative Economics
19  Future Narratives, Future Research  271
Appendix: Applying Epidemic Models to Economic Narratives  289
Notes  301
References  325
Index  351

Figures
2.1 Articles Containing the Word Narrative as a Percentage of All Articles in
Academic Disciplines   13
3.1 Epidemic Curve Example, Number of Newly Reported Ebola Cases in Lofa
County, Liberia, by week, June 8–November 1, 2014   19
3.2 Percentage of All Articles by Year Using the Word Bimetallism or Bitcoin in
News and Newspapers, 1850–2019   22
3.3 Frequency of Appearance of Four Economic Theories, 1940–2008   27
5.1 Frequency of Appearance of the Laffer Curve   43
10.1 Frequency of Appearance of Financial Panic, Business Confidence, and
Consumer Confidence in Books, 1800–2008   116
10.2 Frequency of Appearance of Financial Panic Narratives within a
Constellation of Panic Narratives through Time, 1800–2000   118
10.3 Frequency of Appearance of Suggestibility, Autosuggestion, and Crowd
Psychology in Books, 1800–2008   120
10.4 Frequency of Appearance of Great Depression in Books, 1900–2008, and
News, 1900–2019   134
11.1 Frequency of Appearance of American Dream in Books, 1800–2008, and
News, 1800–2016   152
12.1 Frequency of Appearance of Gold Standard in Books, 1850–2008, and
News, 1850–2019   159
13.1 Frequency of Appearance of Labor-Saving Machinery and Technological
Unemployment in Books, 1800–2008   175
14.1 Percentage of Articles Containing the Words Automation and Artificial
Intelligence in News and Newspapers, 1900–2019   197
15.1 “Housing Bubble” Google Search Queries, 2004–19   226

16.1 Frequency of Appearance of Stock Market Crash in Books, 1900–2008, and
News, 1900–2019   232
17.1 Frequency of Appearance of Profiteer in Books, 1900–2008, and News,
1900–2019   243
18.1 Frequency of Appearance of Wage-Price Spiral and Cost-Push Inflation in
Books, 1900–2008   259
A.1 Theoretical Epidemic Paths   291

Preface: What Is Narrative Economics?
When I was a nineteen-year-old undergraduate at the University of Michigan
over a half century ago, my history professor, Shaw Livermore, assigned a short
book by Frederick Lewis Allen, Only Yesterday: An Informal History of the
1920s, about the run-up to the 1929 stock market crash and the beginnings of the
Great Depression of the 1930s. It was a best seller when it was published in
1931. After reading it, I came to believe that the book was extremely important,
for it not only described the lively atmosphere and massive speculative booms of
the Roaring Twenties but also illuminated the causes of the Great Depression,
the biggest economic crisis ever to hit the world economy. It struck me that this
period’s history of rapid-fire contagious narratives somehow contributed to the
changing spirit of the times. For example, Allen wrote an eyewitness account of
the spread of narratives throughout 1929, just before the stock market peaked:
Across the dinner table one heard fantastic stories of sudden fortunes: a
young banker had put every dollar of his small capital into Niles-Bement-
Pond and now was fixed for life; a widow had been able to buy a large
country house with her winnings in Kennecott. Thousands speculated—and
won too—without the slightest knowledge of the nature of the company upon
whose fortunes they were relying, like the people who bought Seaboard Air
Line under the impression that it was an aviation stock. [Seaboard Air Line
was a railroad, so named in the nineteenth century, when “air line” meant the
shortest conceivable path between two points.]1
These narratives sound a bit fanciful, but they were repeated so often that
they were hard to ignore. It couldn’t have been so easy to get rich, and the most
intelligent people in the 1920s must have realized that. But the opposing
narrative, which would have pointed out the folly of get-rich-quick schemes, was
apparently not very contagious.
After I read Allen’s book, it seemed to me that the trajectory of the stock
market and the economy, as well as the onset of the Great Depression, must have
been tied to the stories, misperceptions, and broader narratives of the period. But
economists never took Allen’s book seriously, and the idea of narrative