Daniel Peris on Robert Shiller's 'Narrative Economics'
Culture matters. And a key element of culture is storytelling. These maxims can be accepted as given, except in modern economics, where the mechanistic framework of modern macroeconomic analysis allows just for formulas. Concerned about the relationship between unemployment levels and inflation? Here’s the formula: gW = gWT – f(U − U*) + λ·gPex It’s called the Phillips Curve. Your personal experience of unemployment or rising costs, the stories that you tell others or hear from them–about globalization, about jobs being exported, about “disintermediation” through technology, etc–these stories play no role in the economics taught in the classroom, but may have a significant impact on the decisions that you make and the life you may lead.
Robert Shiller’s new book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events (Princeton, 2019) reminds economists and participants in the economy–that’s all of us–of the importance of storytelling in explaining economic developments and explaining how people respond to events. Using the language and methodology of epidemiology, Shiller shows how various economic narratives have “gone viral” and had real economic impacts. Narrative Economics builds on the advances of behavioral economics in recent decades by adding the core element of social activity–storytelling–to our understanding of economic change.
Daniel Peris is Senior Vice President at Federated Investors in Pittsburgh. Trained as a historian of modern Russia, he is the author most recently of Getting Back to Business: Why Modern Portfolio Theory Fails Investors. You can follow him on Twitter @Back2BizBook or at http://www.