US economy

Narrative economics


I just finished reading and reviewing Nobel laureate Bob Shiller’s new book, Narrative Economics, for a future FT Weekend piece. Shiller has always said that economic trends were driven as much by feeling as fact. Now he’s taking the argument further with the notion that certain stories catch hold in the public imagination, and then set in motion specific economic events or even long-lasting trends (one fascinating titbit is that the Great Depression may have been prolonged by the very Puritan behaviour that it encouraged, as a broad economic story developed around the morality and necessity of thrift).

Reading it made me wonder about the various stories out there in economics and politics today, and which ones will catch hold and develop a life-force of their own. Certainly, I think the idea of US stocks not being a great place to keep money longer-term is already starting to go viral after I published a piece in August admitting that I had taken my own equity holdings to cash.

I received numerous calls and emails from people who said that they shared my worries. I spoke to one television pundit in a green room (we were on the same show, discussing this issue) saying that his portfolio looked a lot more like mine than he was willing to admit. While we haven’t yet seen a crash in the S&P 500 index, I think that this sense that US equities and the US dollar aren’t what they used to be is spreading fast — and once the penny drops, I predict it will fall fast and hard.

Pen on the money on white table. Business concept.
© Dreamstime

Meanwhile, there’s another narrative developing that Elizabeth Warren may be the next US president (certainly plenty of people would disagree, but my own unscientific straw poll seems to bear out the idea that plenty of people view her as the candidate to beat, particularly if there’s a recession). That narrative is already triggering any number of real world moves, from rich people selling property that they believe will be taxed at much higher rates, to US companies starting to think more about how to move supply chains back home longer term (I’m not talking about the Donald Trump-tariff related moves, or Department of Defense pressure, but moves triggered more by Warren’s own notions of what patriotic capitalism entails — witness her recent criticism of Levi’s). If she gets the Democratic party’s nomination and millennials start to envision a world in which they might see a student debt jubilee, I could imagine that triggering an uptick in their consumer spending.

That could, in turn, shift the consumer confidence picture in the US. I’m not arguing that this will be the case — in fact, I’m more inclined to believe that a coming recession will turn swing state voters against the president and result in a Warren election. But that’s how narratives are — they start small, get big and then ping-pong around in ways that you don’t expect. Shiller, for his part, wants to see more economists tracking popular narrative just like they do unemployment figures or gross domestic product.

Ed, if you were going to highlight a narrative that economists should be paying attention to today, what would it be?

Recommended reading

  • Given my note above, Ed, I must highlight your FT Weekend piece about why economists get it so wrong.
  • I enjoyed Evan Osnos’s take on how China brought the NBA to heel, an episode that I feel reflected incredibly badly on both the league and American business in general. Basketball is “America’s game”. Free speech is America’s value.
  • I was fascinated by how video games have become a front in the war over Hong Kong’s future.

Edward Luce responds

Rana, there’s no one narrative that I would urge economists to pick up on to the exclusion of others. I would more generally urge them to interract with other disciplines, non specialists, hiring managers, and generally practice what Danny Blanchflower calls the “economics of walking about”. That said I would urge the same advice on any human-related specialism that has pretensions to being a science, including political science. We’re all too beholden to data, which tends to arrive too late for economists. Most of us are underexposed to the anecdotal hunches that serendipitous encounters with other human beings can produce. Economists should travel more outside of the big cities and outside of America. They should cultivate widespread curiosity in all forms about these strange creatures we call human beings. The best economist in the last century, John Maynard Keynes, was a model of polymathic appetite. He had a voracious curiosity about the world in all its forms — people, history, arts, investing, travel. His economics was inspired by the hunches that came from other pursuits.

Your feedback

We’d love to hear from you. You can email the team on swampnotes@ft.com, contact Ed on edward.luce@ft.com and Rana on rana.foroohar@ft.com, and follow them on Twitter at @RanaForoohar and @EdwardGLuce



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