Definitions
Shiller defines narrative economics in this article as “the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations.” (The lecture turned into a book; I looked an excerpt in an earlier post, Narrative in economics: Shiller’s stories.)
He describes narrative as “a simple story or easily expressed explanation of events that many people want to bring up in conversation or on news or social media because it can be used to stimulate the concerns or emotions of others, and/or because it appears to advance self-interest.” Later in the paper he describes narratives as “human constructs that are mixtures of fact and emotion and human interest and other extraneous detail that form an impression on the human mind”; this underscores the importance of emotion in his analysis.
The inclusion of explanation in his definition of narrative is understandable, since it allows him to include many more instances in his scope. However, I think it broadens the scope of the term so far that it becomes almost meaningless. The two categories in his definition of narrative overlap, but they’re not identical: many stories are explanations, but not all; and some explanations are stories, but not all. Saying that ice floats because freezing increases the spacing between water atoms, so reducing density, an easily expressed explanation, but it’s not a story. Conversely, a ghost story does not necessarily explain anything.
Examples of narrative epidemics
Shiller gives several examples of “narrative epidemics,” the spreading of a story through a population. While the Kermack-McKendrick epidemic model figures prominently in this work (indeed, these models are at the heart of his definition: “the study of the spread and dynamics of popular narratives”), I think the epidemiology is a side-show. The charts purporting to show epidemic spread of "economic narratives" don’t affect the strength of his claim that stories influence economic fluctuations. It’s almost as if he needed to be able to show some differential equations in order to pass muster among his peers.
Economic theories
The first example given is the Laffer Curve, which illustrates a theoretical relationship between rates of taxation and the resulting levels of government revenue. The curve, and the theory behind it, was used to argue that that lower taxes could increase tax revenue. It’s telling that Shiller considers a diagram to be a narrative; to me it’s an explanation, model, or meme without the plot or character that’s essential to narrative. The way that the Laffer Curve went viral thanks to a colorful article in the Wall Street Journal (which contained a powerful setting, plot and character) is itself a great narrative, but that doesn’t make the Curve itself a story.
Shiller also offers data showing the contagion of four other economic theories (IS-LM, Multiplier-Accelerator, Overlapping Generations model, and the Real Business Cycle model). However, he discounts them as “less appropriate for our purposes because they are not just narratives, they are more substantively original than the Laffer Curve.” The implication is that he’s more interested in ideas that are not original, and perhaps that are not credible in professional circles. I suspect he’s focused on stories that are more fictional (with the implied connotation of false) than factual; academic economics falls in the latter category.
Bubbles and recessions
He then turns to speculative bubbles, and tells a story about stories: “rapid price increases boost the contagion rate of popular stories justifying that increase, heightening demand and more price increases.”
He starts looking for the “narrative basis of economic recessions” first in the 1920–21 downturn. He discusses several explanations. The most influential account, he contends, comes from Milton Friedman and Anna Schwartz, who blamed it on the Federal Reserve erroneously raising the discount rate to trim rapid inflation “caused by their carelessly over-expansionary policy right after World War I.” However, Shiller argues that there were other horrible things going on at the time. “All of these events – World War, the influenza epidemic, the race riots, the Big Red Scare, the oil shock – were associated with hugely unsettling narratives that could have led to a sense of economic uncertainty that might have discouraged discretionary spending of households and slowed down hiring decisions of firms around the world.” He contends that these narratives are more persuasive causes of the 1920–21 recession than Federal Reserve action.
His narrative-based explanation for the Depression of 1920-21 – more persuasive causes of the than Federal Reserve action – is as follows: “substantially a consumer boycott against imagined profiteers, based on narratives that made them villains, abetted by a sense of possible personal opportunity to postpone buying, or sense of revenge against the profiteers by outsmarting them, in the presence of an affect heuristic event driven by other emotion-laden narratives (connected to the World War, the Communist revolution, the influenza epidemic, the race riots, the Big Red Scare, the oil shock).”
Turning to the Great Depression of the 1930’s, Shiller offers a catalog of narratives that he believes have explanatory value: the stock market crash of October 28, 1929; echoes of the 1920–21 event; a feedback loop, notably FDR’s “the only thing to fear is fear itself”; national revulsion against the excesses of the Roaring Twenties; fears of rising government interference with business; Communist conspiracy narratives in the late 1930’s; scary news from Europe and Asia, such as Stalin’s famines and Japan’s invasion of Manchuria; and stories of business failures. The common thread, I think, is that all these stories amplified consumer anxiety, which suppressed demand. In the end, the multiplicity of candidates weakened the argument to my mind.
The explanation by narrative analogy also appears in his discussion of the 2007 recession. He characterizes renewed interest in the Great Depression as the following “basic narrative,” which is an extended historical analogy: “we have passed, by 2007, a euphoric speculative immoral period like the Roaring Twenties, the stock market and banks are collapsing in 2008 as around 1929, and now the economy might really collapse again like that; we might even be unemployed and on the street crowding around failed banks, yes really!”
Stories accumulate into narratives
Shiller suggests that “[f]inancial crises are driven by a cadence of stories”; for example, governments in 2008 bailed out banks in the UK and the US in order to avoid bank runs, which cast a long shadow from the 1930s (here, the regulators are acting on the basis of the analogy). Similarly, he notes the prominent business stories in the mid-2000’s that the new high tech companies (Facebook, Google, YouTube, Twitter, etc.) might not be creating jobs for people outside the tech elite. Shiller cites Kahneman and Tversky’s representativeness heuristic (the principle that people judge current events by their similarity to memories of representative events) as the reason why in “2007-09 presidents and prime ministers invoked parallels to the Great Depression to justify their requests to apply stimulus.”
Shiller argues that the impact of narratives is cumulative. Commenting on the 1920–21 recession, he writes: “The story that consumer prices would fall dramatically, a story which had good contagion since it was associated with the profiteer narrative, was not so much told as intimated thousands of times during the 1920-21 recession when newspapers heralded some individual prices that had indeed fallen to 1913 or 1914 levels.” The “associated narratives” seem to be news reports and public concern about events and patterns of events; the only ones on his list that feature I would count as stories by virtue of having discernible characters is the Red Scare (Communism on the March), and perhaps the world war (Fritz, or Kaiser Wilhelm). A key element is the spread of a core element, what might be better described as a meme than a narrative: the “form of [a] narrative varies through time and across tellings, but maintains a core contagious element, in the forms that are successful in spreading.”
My take-away is that stories (the micro) accumulate into a narrative (the macro). Narrative is the abstraction or category of which particular stories are instances.
Transposition to tech policy
Shiller’s exposition provides a useful framework for an analysis of stories and technology policy. His definition of narrative economics (above), can be easily transposed into, “the study of popular narratives, the stories, particularly those of human interest and emotion, to understand changes in attitudes and policies about technology.” The reasons he provides for his work could be easily transposed to justify work on myth & tech (my cuts in strike-through, and additions in red italic):
- “Narratives are major vectors of rapid change in culture, in zeitgeist, and ultimately in economic and other social behavior”
- “… narratives might well be thought of as important, largely exogenous shocks to
the aggregate economytechnology policy”
- “… we would be wise to add some analysis of what people are talking about if we are to search for the source of
economic fluctuationstechnology policies”
- “We need to understand the narrative basis for
macroeconomic fluctuationsattitudes to technology, and to think about how narrativeeconomicsanalysis ought to be more informing of policy actions now and in the future”
Unwrapping “narrative”
Shiller is not alone in defining narrative very widely. The Royal Society report Portrayals and perceptions of AI and why they matter – an output of the “AI narratives project” – uses “narrative” 177 times. The term is used so loosely that “description” would suffice. I suspect the meaning of the report would not be changed at all if one substituted words like claims scenario, argument, framing or portrayal for narratives – but it wouldn’t sound as fancy.Here’s a first stab at mapping the concepts that Shiller and others sweep up under the term “narrative”
- belief, ideology, hypotheses, theory, view
- explanation, description, justification, reason, model
- concept, image, impression, perception, perspective, representation
- analogy, metaphor, motif, trope
- account, chronicle, history, story, tale
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