Even the economy is made up of stories. Or rather, there are stories that are capable of influencing the economy. This is the argument put forward in the book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events” by the economist and 2013 Nobel laureate Robert Shiller.
Although the experts have traditionally ignored them, these narratives – however true they may be – have always had an influence on individual behaviours, with a significant impact on the economy. This has happened on the most diverse topics from the American Dream to bitcoin, and in more recent times, automation and artificial intelligence and their impact on work.
“An economic narrative is a contagious story that has the potential to change how people make economic decisions, such as the decision to hire a worker or to wait for better times, to stick one's neck out or to be cautious in business, to launch a business venture, or to invest in a volatile speculative asset,” Shiller explains.
The Nobel laureate talks about a genuine “economic narrative”: the significance – or rather, the contagiousness - of these narratives steers individual behaviours, in some cases even influencing the economy of whole countries, and even the whole world. “Narratives have been ‘going viral’ for thousands of years,” Shiller says, though over time the channels have changed: first there was word of mouth, then the Media and now mainly social media.
An economic narrative is a contagious story that has the potential to change how people make economic decisions
The very definition of homo sapiens may even have been surpassed thanks to the human trait of telling stories: “Some have suggested that it is stories that most distinguish us from animals, and even that our species be called Homo narrans (Fisher 1984) or Homo narrator (Gould 1994) or Homo narrativus (Ferrand and Weil 2001). Might this be a more accurate description than Homo sapiens, (i.e., wise man)? It is more flattering to think of ourselves as Homo sapiens, but not necessarily more accurate.”
Understanding the significance of stories on people’s actions and their effects on the economy is key. For this reason, Shiller says, “by incorporating an understanding of popular narratives into their explanation of economic events, economists will become more sensitive to such influences when they forecast the future. In doing so they will give policymakers better tools for anticipating and dealing with these developments.” The contribution of the humanities – sociology, psychology and anthropology – is a key element. “Indeed, my argument in this book is that economists can best advance their science by developing and incorporating into it the art of narrative economics”, the Nobel laureate writes.
Take the example of bitcoin, the peer-to-peer cryptocurrency invented in 2008 following the publication of an academic paper authored by someone called Satoshi Nakamoto. “The Bitcoin narrative involves stories about inspired cosmopolitan young people, contrasting with uninspired bureaucrats; a story of riches, inequality, advanced information technology, and involving mysterious impenetrable jargon,” Shiller explains. These are the narrative elements that determined its success: “Bitcoins have value today because of public excitement,” Shiller writes.
By incorporating an understanding of popular narratives into their explanation of economic events, economists will become more sensitive to such influences when they forecast the future
But not all stories are necessarily positive. This is true of those stories that describe how machines will destroy millions of jobs. “This is not about the fear of arriving in the office one day and being told that your company is purchasing a new computer that will do your job. The changes taking place are more gradual, inevitable and on a large scale. The most likely scenario is that as computers automate more and more tasks, you will notice that your employer appears to be increasingly indifferent to your presence, you are no longer offered a rise, you are not incentivised to stay with the company and no other people like you are being hired, until one day they won’t even remember you anymore. Fear about our future is more about the existential fear that nobody needs us,” Shiller says.
Even narratives like these have an economic effect: for example, the fact that more and more people doubt that the education sector is actually giving them the training they need for the new world of work on the horizon. It may be comforting to know that the narrative around automation and unemployment caused by technology has been repeated in almost every decade since the 1930s. And even then, there was talk of a universal basic income to counteract the negative impacts. History, like stories, tends to repeat itself.
So, should we try to eradicate these narratives or simply take no notice of them? Actually, neither. The fact that stories become viral is in itself neither negative nor positive (though it is certainly inevitable) but being aware of the mechanisms can help us understand the ways of the world. This is especially true for economists: Shiller suggests that more research should be done on economic narratives. However, it is still useful for the man on the street to be aware of the influence that these narratives can have on society, helping us to identify current trends and be more objective about the way things are. As we wait for the next story of course.