Nobel Prize Winning Economist Reveals the Power of Narrative

Presidential campaign manager James Carville, the Ragin’ Cajun, helped propel Bill Clinton to the White House in 1992 with a simple strategy. Tell the story of an economy in peril: “It’s the economy stupid.” The quip has endured.

Narrative Economics

More recently, Nobel Prize Winner and Yale Professor, Robert Shiller, found a new message for economists: “It’s the story, stupid.” Actually, Professor Shiller has pioneered a revolutionary approach to the dismal science, called narrative economics.

“Narrative economics demonstrates how popular stories change through time to affect economic outcomes, including...recessions and depressions,” according to Shiller.

We should listen. Shiller’s prescient book, Irrational Exuberance, foretold the tech and housing bubbles and busts.

How Stories Go Viral & Drive Major Economic Events

“The most powerful person in the world is the storyteller,” proclaimed Steve Jobs when he was CEO of Pixar.

Shiller reveals the power of stories to shape economic activity and financial markets in his groundbreaking recent work, Narrative Economics (subtitle above).

Shiller notes that traditional economists excel at abstract theoretical models and data, good for short-term forecasts but “on the whole worthless” for longer-term forecasts. Shiller urges economists to find a new approach “to change future outcomes for society’s benefit.” Shiller offers a “new theory of economic change.”

In Narrative Economics, Shiller urges us to study “contagious popular stories that spread through word of mouth, the news media, and social media.”

Shiller unites epidemiology, the study of pandemics, the humanities, and the principles of storytelling. (We need you now more than ever, writers.)

Bitcoin or Bust

Shiller offers the viral contagion of Bitcoin as a straight-from-the-headlines example of his theory. Narrative epidemics are similar to viral epidemics. They appear suddenly, expand rapidly, and then fade.

Bitcoin has been a highly contagious story that has inspired “real entrepreneurial zeal…at least for a time,” notes Shiller.

The bitcoin story is one of riches, technology, young people, the spirit of a hacker’s rebellion, and magical jargon. Bitcoin’s origin itself is a mystery, traced to the anonymous Satoshi Nakamoto, the unseen figure said to have developed the first blockchain database and who inspired a movement with a white paper.

Like so many other popular movements and narrative epidemics, Bitcoin is now on the downswing.

The price of Bitcoin has fallen from a peak of nearly $70,000 at the end of 2021 to a low below $19,000 as of this writing.

This was not a surprise for those who embrace Professor Shiller’s insights.

Portfolio Managers and Poets Unite!

The moral of the story: we all need to understand the nature of story. Time for Narrative Economics.

@RickLakeNAlpha

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