Branko Milanovic Narrative Economics?How Stories Go Viral and Drive Major Economic Events, Robert Shiller

Author:Jonathan Portes
Position:Professor of economics and public policy, King's College London.
Story Time
popular phrase on socia l media, ironically often
used by those with at best a rudimentary grasp of
history. Robert Shiller’s mission in this book is to
convince us of the opposite—that ec onomic facts
are indeed driven by our feelin gs. ose feelings are
in turn driven by what he describe s as economic
narratives— contagious stories with the potential
to change how people make economic decisions.
Recently, an extensive economic literature has
looked at how perceptions can drive outcomes
and vice versa.
But Shiller argues th at the power of narratives
is both broader and deeper than c ontemporary
economics is prepared to accept. We cannot under-
stand or, regarding the future, predict episodes
like the Great Depression—or the 1980s move
toward personal tax c uts—without understanding
the narratives th at underpin them. In some ways his
thesis could be seen as pushback against the most
recent Nobelists. ese “randomistas” a rgue (to
oversimplify, no doubt unfairly) that the discipline of
science can strip away the need to “tell stories” and
cleanly identify t he reduced-form causal impact of
particula r policy interventions, without fear about
expectations or beliefs.
But—and it is a big but—it is Shiller’s approach
to causality t hat trips him up. His description of
the cult of fruga lity during the Great Depression,
and how it led to the mass adoption of blue jeans
and jigsaw puzzles, is enterta ining. But the claim
that “the crazed natu re of the phenomena...helps to
explain the lengt h and severity of the Depression”
is a stretch, to say the least. Simi lar examples
dot the book. Art La ffer’s napkin and Ronald
Reagan’s jokes (not to mention a short story by
Astrid Lindgren) “touched off an intense public
mandate for tax-cuttin g”; George W. Bush’s post–
9/11 narrative ended the 2001 recession.
But why should we believe that these stories genu-
inely caused their related ec onomic events rather than
being driven by them, or perhaps being usef ully and
interestingly illust rative of them? ere’s remarkably
little reference to empirical ev idence, and none to the
recent literature on, for example, political uncer tainty.
Instead, Shiller’s views of the importa nce of nar-
rative seem themselves to be based on his belief in
a specific story about how and why people make
economic decisions. “Ultimately, the mass of people
whose decisions cause economic fluctuations aren’t
very well-informed…and yet their decisions drive
aggregate economic act ivity. It must be the case th at
attention-getting narrat ives drive those decisions.”
e “must” is assertion, not analysis. Not surpri s-
ingly, given this lack of analy sis, the book does little
to set out a convincing research agend a. e call
for economists to draw from other disciplines , not
just epidemiology but qualitative social re search,
among others, is welcome. But I struggle to see how
Shiller’s thesis can be turned i nto testable hypoth-
eses and especia lly, as he hopes, into mechanisms
for predicting and avoiding economic downturn s
or crises.
JONATHAN PORTES, professor of economics and public
policy, King’s College London
Robert J. Shiller
Narrative Economics:
How Stories Go Viral
& Drive Major
Economic Events
Princeton University Press,
Princeton, NJ, 2019, 377 pp., $27.95
The power of narratives is
both broader and deeper than
contemporary economics is
prepared to accept.

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