Robert J. Shiller, “Narrative Economics”: Director’s Lecture, January 26, 2017


Welcome to the Neubauer Collegium Director’s
Lecture. This evening professor Robert Shiller, Sterling professor of economics at Yale, and
a Nobel laureate in economics will give a lecture, entitled, narrative economics.
His work is of such distinction, and wide interest, that he could easily be speaking
at any of a number of departments or research institutes on campus. But perhaps a word is
in order on why he is an outstanding speaker for the Neubauer, it exists to promote qualifications
and collaborations around issues so deep and complex that it is unlikely that any one perspective
or area of expertise will be adequate to address them.
We do not exist for the sake of interdisciplinary research per se, but rather to bring together
people from any discipline, indeed from any domain of thinking and any part of the world,
to think through a problem wherever that thinking needs to go. What unites communities of inquiry
is to be human, with issues of concern to us as human.
For example, what are the best ways to preserve and present material cultures of the past?
What is human health and what are the best ways to promote it?
How should we think about and respond to challenges of climate change? What is it for a environment
to be sustainable? How are we to understand crime within human society and what are ethical
ways to respond to it? What is the significance of the humanities
and social sciences? The humanities and social sciences are not simply different areas of
inquiry. They are different postures of the mind. The social sciences demand scientific
rigor, and approach to the human that understands rigor in terms of an objective stance, one
that is testable, repeatable and evidence based.
The humanities by contrast are essentially first personal singular and plural. In the
sense that what is to be understood, the human, is itself shaped by the very understanding
that is taking shape. The human world is shaped by literature, philosophy,
history and culture, not simply as external forces, but by the very understandings of
literature, philosophy, history and culture that constitute it.
This is not, I think, subjective. It’s not a subjective, as in contrast to the objective
sciences. It is rather a realm of the human, in which the concept subjective and objective
are not well suited to understand what is going on.
The inquiries are also rigorous, but it’s a different form of rigor. But how might these
different postures of the mind, the humanities and social sciences, come into fruitful conversation
and possibly influence each other? To me this is a obvious fact, some of you may not know
this, but I think very few, I am not an economist. I make no claims to expertise. But when I
read through Robert Shiller’s books, I think this is a world Plato would recognize, as
would Freud and Shakespeare, Tolstoy and Proust. And in his book phishing for phools, Shiller
and his coauthor George argue that a free market is efficient not just in creating objects
that satisfy our desires, but also in taking advantage of weak spots in our human constitution,
temptation, seduction, wishes, many unconscious, not to be thought of as what we really want.
He calls this the monkey on our back. He argues that there is such efficiency. Plato came
to a similar conclusion, it shaped Socrates critique of democracy as a political form.
Republicans books, 4, 8, 9 and 10 are required reading for our times.
For Socrates, rationality was not to be found thick on the ground amongst humans because
it required both an accurate understanding of what it would be to live a happy life,
and a psychic capacity to organize one’s psyche so that such an understanding harmoniously
prevailed. His investigation of human psychology led him to believe that appetites regularly
distort our conceptions of human happiness. This occurs he thought via the production
of seductive narratives that distort reason’s ability to distinguish tempting appearance
from real happiness. In this picture is less that there is a monkey on our back than there
is something monkey‑ish within us. If we add Darwin into the mix, the point is not
that the monkey is on my back but I’m a monkey’s uncle and what are we to do about this. I
understand his work is controversial within economics and controversy a often welcome
within a discipline. But that is not the reason I invited him,
it’s not for the sake of controversy, nor is it a way of weighing in on one side or
the other. I’ve invited him because he is a distinguished
thinker within his discipline whose ideas and hunches reach out and challenge you the
throughout the humanities and social sciences. To pursue his thoughts, we would need not
only to be economists but we would need to think deeply about what rationality consist
in, about the difference between real want and distorting temptation. What is it for
human lives to be fulfilling, what are narratives and what place do they have in human life.
How is it best to think about the human psyche? What political formations foster human flourishing.
In short Robert Shiller’s work lays down challenges within economics that radiate out to psychology
and philosophy, history, literature, sociology, anthropology and political thought. As you
probably know, Robert Shiller won the Nobel Prize in economics in 2013 along with our
very own Eugene Fama and Lars Hansen. He taught at Yale since 1982. He is well‑known for
three best selling books, irrational exuberance and two coauthored books, animal spirits,
how human psychology drives the economy and why it matters for global capitalism ‑‑
spirits. And phishing for phools. He wrote articles on market volatility and the creation
of bubbles. He is regarded as one of the most influential economists that work today.
On the occasion of winning the Nobel Prize he wrote a auto biography that is available
on the website of the Swedish academy and I recommend that you read it. Especially poignant
in his account is the account of his marriage. It is not just that his tribute to his wife,
Ginny is sincere and heart felt, it is that she is an accomplished psychologist and their
conversations opened up his economic thinking to the world of psychology.
The kinds of conversations we want to support in the Neubauer collegium seem to be occurring
in the Shiller household on a daily basis. After Bob speaks we shall have a open ended
conversation with him and John Levy followed by questions and answers from the audience.
John is well‑known to most of you. But for those that don’t know him he is a professor
of history at the University of Chicago, and he specializes in the history of economics
in the United States. His book, the ages of American capitalism is forthcoming from random
house. John is currently a principal investigator in the Neubauer Collegeium project the economy
and its boundaries. Please join me in welcoming professor Robert Shiller who will speak on
the topic of narrative economics. (applause).
>>ROBERT SHILLER: Thank you, Jonathan. I’m honored to be invited to speak to the Neubauer
Collegeium. I have to say that all my life, I’ve appreciated an integrative cross disciplinary
approach. That is what the Neubauer Collegeium stands for.
But I haven’t been that much connected to the humanities. 25 years ago, Dick thayler
and I, he is a professor at Chicago here, we set up a series of workshops at the national
bureau of economic research on what we called behavioral economics.
Behavioral economics was economics with an input from a psychology department. In every
department, it has its own toolkit for approaching research. We were very much psychology. Maybe
a little sociology. Maybe a little anthropology. But it was all social science.
Well, a little bits of humanities. But I’m starting now with my more recent work to think
that we have to look at the humanities as well.
History and literature, because the theme of my talk today is that use the word humanistic,
and humanity, I’m not always sure that I knew what that meant. But there is something that
it’s difficult to formalize about human beings, that we have to understand. I’m increasingly
believing if we are going to understand economic phenomena.
I want to talk today about something that I’m calling narrative economics, which is
approaching economics, it is not replacing economics, it is adding something to economics
which is the study of the narratives that people transmit. So what is a narrative? I’ll
define it my own way. The human species, everywhere you go, is engaged in conversation. We are
wired for that. If you look at any human society, you will see people standing, facing each
other, moving their lips, and what are they doing? Largely telling stories or narratives.
Narratives then spread through contagion from one person to another. There is a inventor
of a narrative and the narrative spreads. It can disappear quickly or can last a long
time. I think of a narrative as a gem, something
that you heard somewhere, and you think, I’ll remember that next time I’m in a conversation.
I’ll use that. I’ll say it. I’ll try to present it right because I want it to have the effect
that it had on me. That is a narrative. Narrative can, the current word is go viral. That means,
they can have a contagious element from one person to another. And then explode onto the
national or international stage. I think these are, this is a, understanding
the virality of narratives is one of those large scale questions that the Neubauer Collegium
is interested. It is interesting to look, whose idea was it that narratives or ideas
could go viral? I think I’ve traced it back with the help of Joel at Northwestern University
to David Hume in the mid 1700s. With Hume, who seemed to be the first that
I found, tell me if you know of a earlier statement, but they didn’t even have a germ
theory of disease yet. So it was in its beginnings. The really clear statement I thought was in
Lebron’s 1895 book, the crowd. This book is famous for coining the term, crowd psychology.
But he also used another term that never caught on, never went viral itself, and that was
idea microbes. This is 1895. Why didn’t he say virus? Because as you must know, viruses
weren’t invented or discovered yet until 1897. Nobody could say
the virus. Then Richard Dawkins is credited with the,
you know the term mema, is a thought, a idea that is transmitted and can go viral.
I thought, this morning at my hotel they give away newspapers. I thought I have a good example
of a narrative right here. I don’t know if you can see this. Can you see this?
It says Dow tops 200 ‑‑ sorry, tops 20,000. Now, first of all, I don’t know if this needs
any explanation. This is absolutely meaningless. All right?
(laughter). Because they started the Dow at 40 in 1896.
Hey, but they could have started it at 50 or something else. So it is just a joke. But
they, look where they put it and look at this diagram of the stock market. Woo!
And then, in the second paragraph, they link it to another narrative, Donald J. Trump.
Okay? Now, this is something that you are trained to do in journalism school. The Wall
Street Journal is a great newspaper. I don’t mean to be too tough on it. But it’s a little
endangered. It was taken over by Rupert Murdoch because it was in trouble and they have to
do this. It’s part of what George akerrloff and I call
a fishing equilibrium. Within limits you have got to fish. You have to play the game. Another
thing that strikes me, it says applause, whoops and cheers erupted on the floor of the New
York stock exchange as the market closed. Now, do you believe that?
I mean these guys aren’t stupid, right? They know it’s just a number that was made up.
But then you have to reflect that, well, the whole floor of the New York stock exchange
is just a trick because we are into electronic trading now. Why do they even keep that? Well,
they keep it because it’s a narrative, right? People come to New York and they want to see
the New York stock exchange, they want to see something. They have a visitors gallery.
They take lots of pictures. But anyway, this is a distinguished newspaper,
that we depend on for our democracy to function well.
Now I took another, the other newspaper at our hotel, it’s called USA Today. Can you
see that? (laughter.)
It says Dow at 20,000, now what? So, and Dow, 20,000, a long term, a long time
goal of Wall Street bulls that pessimists said was a pipe dream, is now etched into
the record books as the biggest milestone ever achieved by the 120‑year‑old index.
That is just so much baloney, right? They bring in human ‑‑ this is really a story,
this is a narrative about a number, this 20,000. But it’s also a story about people, because
they talked about these, triumph of the bulls over the pessimists who said it was a pipe
dream. This is what they teach you in journalism
school. But you would learn it yourself eventually if you ever wrote for a newspaper. You gotta
bring in human interest. So they are thrilled by it. Here is a picture,
see this, you can’t see it, it’s too far away but it’s someone on the floor of the New York
stock exchange, with a big smile. Do you believe that? He is not really thrilled. He knows
there is a camera there, right? He is putting on an act. They are all in this. This is telling
a story. It’s not evil. I’m just saying, do you really believe with all this noise, this
is what people are reading, is anyone studying the fundamentals this morning of the stock
market and thinking about what level it should be at?
That is narrative economics. Now, I’ll go to my first slide here. The thing
that occurs to me is that what I’m telling you is not new. I hope many of you kind of
knew this all along. Narratives drive the world that we live in.
But not everyone is equally proficient at understanding narratives. I have to say that
my own profession is one of the weaker ones in appreciating narratives.
So I did some statistics to show this. I took a J store which allows you to search scholarly
journals and I searched for the word narrative in articles in all of these fields.
I did it first for all dates, jSTOR goes back to the beginnings of journal and also did
it from 2010 to 2016. What you see, I can walk over here, economics is the second worst.
I say worst, but finance is the one that really doesn’t care about narratives. I think that
is backwards, because my view of financial markets is they are just tremendously influenced
by narratives. Anthropology is big. History is really big,
now you would think that history is about narratives. It is like a synonym. But not,
what a lot of historians don’t appreciate is that you can’t understand history unless
you tell us what their stories were, what were their narratives.
I was influenced by Ramsey Mcmullen, who is a member of the Yale history department, who
wrote a book called Feelings in History. He says historians could be more attentive to
what people really thought. For example, do you understand the Civil War?
In the 1860s? Horrible war. Why did they do it, they didn’t like slavery in the north
but were they ready to lose over 200,000 men for that issue. They were really emotional.
Some of the stories that they told, I got emotional hearing about abuse of slaves and
things like that. That is a narrative history. It may seem especially relevant right now,
in the so‑called post truth world that we live in, that it’s all narratives driving
everything. The word post truth, according to Oxford English
dictionaries is new in the year 2016. So I think maybe it has gotten worse. But it’s
not necessarily new. There were a lot of narratives that were totally
wrong, that circulated all throughout much of our time.
Can I say something about done all Trump narrative without influencing ‑‑ every storyteller
has a background and understanding of how to tell a story. Donald Trump got expertise
in narratives by some of the businesses he was involved with. First example is gambling
casinos. They have a theme, I don’t know, what you have Taj Mahal or something, I don’t
even know. I don’t go to gambling casinos. But another thing is he is connected with
fake wrestling. What do you call it? People don’t want to say fake wrestling. The company,
world wrestling entertainment, has the word entertainment in its name, which is a clue
that it’s a show. It is not a real wrestling match.
He appeared on that, on their videos or the TV show with Vince, now he’s appointed his
wife or nominated her for director of Small Business Administration.
This has a certain form of narratives that appeals to a certain element of the population.
Probably not most of you here. I don’t know. I’m guessing.
But they have clear delineations of good guys versus bad guys. They are braggarts. They
are obnoxious. Apparently they are fun to watch. He learned that trick.
He had this TV show, called the Apprentice, where, reality TV show where he was presented
as a mentor, tough, but strong person. All these things shaped his campaign later.
There is so much practice and attention to what works, in front of audiences. It seems
not so surprising. I didn’t predict it. Not so surprising that he won the presidency.
He is having economic effects. Real, if he cuts the corporate tax rate from 35 percent
to 20, now he is saying less than 20, right? That should in principle, should push up the
stock market. A lot of what we are trying to predicts with financial market is to predict
that sort of thing. That means we are trying to predict narratives.
It seems like it should be. I’m not the only person raising this. There is Morton Shapiro,
president of Northwestern University, is coming out with a new book, with a Russian language
coauthor, I mean language in literature person, Gary Morrison called sense and sensibility
arguing that the economics profession should be more focused on what they call narrativeness.
DeirdreMcCluskey has a article recently asking for, I forget what he called it. Some kind
of narrative economics. Maybe this is something of a movement. Narratives
of part of, I said this before but I want to clarify, the human brain is built around
narratives. It’s not just, you know, I feel good, I a certain way because it feels good,
no, because there is a pathway built in, structure to support narratives. It is a human species.
A number of people proposed ‑‑ I have a misplaced slide but I’ll say it now. Homo
neurons was proposed as the name of the human species by Walter Fisher in the 1990s. Homo
sapiens we call it but maybe we are not so, sapiens means wise. Maybe we are more homo
storyteller. Then Steven J. Gold said we should be called homo narrator. That is Latin also,
it is a Latin word. I don’t think they know about each other.
They are getting Latin all different ways. We need a Latin scholar to name the human
species. But the human species really is, your mind is really built around narratives.
Especially human interest. That is why advertisers put little ‑‑ they don’t tell about the
product. They show somebody else doing some human action.
Another bit of evidence about the human mind and narratives is dreams. Did you he have
have a dream at night that involved no people, and it was just abstract, maybe moving triangles
or equations. No. It’s never like that. It’s always a story. A lot of people have
a impulse to tell someone about that but the story is kind of crazy. It jumps from one
thing to another. It doesn’t ‑‑ the interesting thing is, that the neuroscientists, Edward
Pace has a new article out arguing that there is a certain kind of brain damage that causes
confabulation. People who tell nonsense stories. It’s because of brain damage, they can’t help
it. He looked at the brain activity of some of these patients and found it similar to
the brain activity in rem sleep when you are dreaming.
It’s, there is other mental illnesses like schizophrenia where you hear voices, or autism
is related to narrative disruption. I’m just saying, we really need to think about the
human species as narrative driven. I wanted to move then to another department
of the university, this has been such an odyssey for me, trying to follow up narrative. I feel
almost, I think one reason economists don’t do it is there is just so much to read about
narratives, all different departments. It’s very difficult. Most might retreat, be
intimidated by the vast literature. So now I wind up in the mathematical epidemiology
department at the medical school. We are talking about contagion of narratives.
This is the most famous original mathematical epidemic model, written 90 years ago. Mathematical
epidemiology has come a long way. This was the classic, as I understand it, original
model. What we do, we are going to have a fixed population,
there is only N people in the population, we are going to divide them into three compartments.
We are talking disease. This isn’t economics. This is 1927, the med school. Susceptibles,
infectives and recovers. The idea is this is a disease, nobody dies from it but they
become immune from it. They don’t spread it anymore after their recovery.
It’s simple, three equations we have. The susceptible is converted to infective by catching
the disease. That is related to the contagion rate times the product of the number of susceptibles
and infectives. That is understandable. They are no longer
susceptible. They are infected. But the reason it’s the product is because it only happens
when a susceptible meets an infect‑ive. The product is a possible number of such meetings.
Down to the third equation, it says that recovereds are, the change, the derivative of recovereds
is equal to the number of infectives times recovery rate. That is exponential decay of
infection. This is the third ‑‑ they add the total
number of all three sums to N, the sum of the derivative has to be 0. So this is the
equation. If you didn’t get all that, don’t worry. All it says is that there is two parameters,
contagion rate and recovery rate, and every disease has its own contagion rate. It might
depend on conditions, whether, crowding or something but this model takes the contagion
rate as constant through time and the recovery rate is constant through time.
What does it do for an epidemic? This is, we are still in the world of med school. But
I’m going to apply this to thought viruses. This is an example of the solution to those
differential equations where I start out with one infective introduced in a hundred people.
This number of susceptible starts at a hundred. Number of infectives at one, and a number
of recovereds is zero. Focus on the number of infective, it rises and falls in a hump
shaped curve skewed to the right in this case. That is a epidemic.
The neat thing about the model, I’ll show one more ‑‑ oops ‑‑ I’m out of order
here. I thought I had the other. I’ll race through this thing. The epidemic size depends
on C over R. The number of people who eventually get infected is R infinity. That is a function
of C over R. Big epidemics are epidemics with a high contagion
rate, relative to the recovery rate. Not absolute. If both recovery rate and, if both C and R
are high, then the epidemic would just move very fast and it won’t get necessarily big.
You can have, the bottom line is if you didn’t get any of this math, is that you can have
fast epidemics that last two or three days, when both C and R are high and then they are
over. Or you can have slow epidemics that take a hundred years and then they are over.
You can have epidemics that only end up infecting 5 percent of the population or it can be
a hundred percent of the population. It depends on those two parameters.
Let me get back to, I’ll give you an example of a thought virus epidemic. This is ‑‑
let me jump ahead, this is the Laffer curve. Art Laffer was a economist who had lunch in
1974 with Donald Rumsfeld and Dick Cheney. These are powerful Washington people. It was
at the two continents restaurant, wonderful Washington restaurant, I guess. I’ve never
been there. While he was there, he drew this diagram on a napkin. What it is, on this axis
is the tax rate, income tax rate, on this axis is the revenue that the government collects
from the taxes. He said the tax rate could be anything from
0 to 100 percent. But if you put a hundred percent tax on somebody they are not going
to work, right? If you are going to turn it all over to the government. If you put a 0 percent
tax rate, you are not going to get any revenue, either.
There is two tax rates that give you 0 revenue. 0 and a hundred. But say then, the punch line
of his story on that occasion in 1974 was, what if you want to raise this amount of revenue?
There is two tax rates that will do it. There is this one, which is low, and it doesn’t
disincentivize people from working too much. Or this one, 90 percent, and almost nobody
works, but somebody does. So you still collect the same amount of revenue.
I don’t know if I said that right. It is like telling a story of a joke and I’m feeling
a little, not doing my best job. But isn’t that a neat punch line to a story,
for someone who doesn’t know any ‑‑ you don’t think it’s neat? (chuckles).
Made Art super famous. If you do a Google search on Laffer curve it’s big. It’s bigger
than Art. He is swamped by his own idea. Why did it get so big? Partly because this was
19 ‑‑ I’ll show you his epidemic curve. This is the actual counts, both for news and
newspaper and for books of references to the Laffer curve. Zero until 1978 because that
is what Jude published a article describing what I just told you. The dinner, Two continents,
the napkin. It soared for years, this is the time when Reagan and Thatcher got elected,
penetrated the U.S. and UK. Didn’t do well in France. The first socialist president got
elected, Francois Mitterrand, it wasn’t contagious there. It was there but not contagious.
Art Laffer wrote a book about it, once you are famous for something it creates opportunities.
He said he couldn’t even remember the dinner, when he first read about it in Jude’s book.
This shows another example of epidemic outcomes. Here I’m looking for books through Google
N grams and looking for four major economic theories. I’ve got the, maybe some of you
don’t know these but they are famous theories, ISLM model published in 1937, by John Hicks.
The multiplier accelerator model, that was published by Samuelson in 1939. The overlapping
generations model published by Samuelson in 1958.
They are all hump shaped. I didn’t select these. Some of them go faster than others.
That is different contagion rates. You can look up people’s names and do this. There
is an article that someone else wrote about it but I did it with a couple of names. I
was struck, one of the most viral of all people was Adam Smith who wrote a book in 1776, called
the Wealth of Nations. He peaked in the 1880s a hundred years after
the book. He has been decaying for another hundred years. But slowly.
Another one was Carl Marx. Who died in the 1880s didn’t peak until 1970s but now has
been decaying for 40 years. I might be wrong to imply something as simple as the Mckendrick
model to that, but it seems ‑‑ I’m running out of time. I have a long paper I’m working
on, on this. But economists like to talk about contagion
but they want it to be through something economic. I mentioned already ‑‑ I’m jumping up
here, I’m having trouble. Sorry, here we are. Paul Samuelson in 1939 gave a model called
the multiplier accelerator model that had, it created a hump shaped pattern like we see
with epidemic curves but it was not through contagion but it was a sort of contagion,
that multiple rounds of expenditure, you economists know what I’m talking about, it was a contagion
through economic channels. When you spend money, somebody else gets money. Then they
spend money. But I think this is only one, this shows a
hump shape pattern from Samuelson’s 1939 paper. Why do narratives affect economic decision‑making?
When we want to understand a depression or recession, we have to understand why some
people will stop spending. What causes a recession? People don’t buy a new car, don’t buy a new
house. Why would they not? What would make you not do it? I can’t imagine anything ‑‑
you can say I won’t do it because it’s a recession. But that doesn’t tell me why recessions start.
I want to know why someone during a recessionary period started spending less. Seems like it’s
related to narratives. One of the most important narratives in our culture is the stock market
crash of 1929. Everybody knows that I think. It’s a very long, one of those long slow epidemics.
It’s still having impact. I’ve been asking in a questionnaire survey of individual investors
for people to give me the probability of a stock market crash like 1929 or 1987.
Those are the two biggest crashes in U.S. history. I’m working with Will getsman and
Kim on analyzing, data I’ve been collecting for close to 30 years. For both individual
and institutional investors, so this is the average probability the respondents give of
a crash. A 1929 crash in the next six months, it’s
way exaggerated all the time. It is 15 to 20 percent. We have only had two such crashes
in over a hundred years. How come, why would you give such a high probability? The other
thing is, it was very low, just before the financial crisis, just exact opposite, when
it was about to do it, they were complacent. There is a mechanism here, they started bidding
up the price of stocks, and then it crashed. Then the probability, after it was over, the
probability went up. We find that people, the narrative about stock
market crashes and narrative about a horrible thing that got 25 percent of the population
unemployed, they were standing in bread lines, then World War II came, because people were
so unhappy, it’s a terrible story. But we have been worried about it all these
times, because the narrative isn’t forgotten. There is so many other episodes that you could
be talking about, but apparently the story doesn’t work as well.
Now I’m going to go to another, I want to go back to some of the biggest financial crises
in U.S. or world history. How am I doing on time, by the way?
You don’t remember this, because it was a big, big narrative, but I don’t think anyone
talks about it anymore. I’m talking about the 1920, ’21 depression. First of all we
wouldn’t call it a depression. They called it a depression. We reserve depression for
the one big event, 1929 to ’40 something. 1920‑21 was a big drop in the economy. The
consumer price index fell 16 percent in one year from June of ’20 to June, ’21. Wholesale
price index fell 45 percent in one year. Why did it happen? You would think that economists
would know the answer. But I asked around. There aren’t many explanations. The explanation
that I heard the most was Milton Friedman, you know about him here I guess, and Anna
Jacobson Schwartz wrote a book called the monetary history of the United States. They
have a long detailed discussion of the 1920‑21 crisis. But it seems to me what they are saying
is that the fed caused it by raising interest rates by one percentage point in 1920.
They said it was a big mistake to do that, and Benjamin Strong, president of the New
York fed, was on a world cruise when they did that. He was absent. Benjamin wouldn’t
have let them do that. Maybe I’m oversimplifying Friedman and Schwartz
and maybe they thought they are writing a book about the monetary history of the United
States, and why should they talk about anything else.
If you know of another story, James Grant wrote a book about this, but he didn’t come
up with any new explanations. I thought I’m going to go back and read newspapers
from 1920, and pretend I was there. And just try to get as immersed as I could, and how
did it feel to be alive in 1920. Then I found some remarkable things. One of
them is, and this is shown on this diagram, that they were really upset about profiteers.
This shows for news and newspapers in the dark line and for books in the lighter line,
the counts. Profiteers got really big. Got up to a third of one percent of all newspaper
articles had the word profiteer in them. You see it’s, this looks again like the Mckendrick
curve. It is dying out. It seems to, it had a steady state. It is pretty low. Maybe you
don’t know what profiteer means. It comes from the word privateer which is a kind of
pirate which goes back hundreds of years. Someone says those guys who made money during
world war one were so evil I consider them pirates, let’s call them profiteers. That
became a new slogan. Oxford says it was started in 1912. UK was earlier in the war than we
were. Spread to the United States. Peaked two years after the war in 1920.
Why did it happen? It’s called the affect heuristic, by Paul slovic. They were upset
by certain things that were happening. You might have trouble recalling because you weren’t
there. So you have no idea what was making them unhappy. Maybe you do. I think some of
you are thinking, influenza epidemic. There was the 1918, 19, influenza epidemic which
was horrible. It caused many times worse than World War I by some accounts. It hit young
people. They would catch it and then two days later they were dead.
That is pretty upsetting. Another thing, it must have been upsetting, another thing, is
the Communist revolution in Russia, which had repercussions here, there was a bombing
of the New York stock exchange. One story that I thought was important, reading newspapers
and trying to feel like I’m living in 1920, you know this story, I bet. Almost all of
you know this story. It is the story of the Communists taking czar Nicholas II and his
family, lining them up, the whole family and then bringing in a firing squad and executing
them all together. You have heard that story, right? It’s horrible.
These were people that you knew, because they were famous, they are beautiful family. Dignified.
They were in the photo section of your newspaper regularly. The Communists just shot them all.
Maybe it was a publicity stunt. It really got attention. You are feeling kind of edgy.
You are kind of angry. You might have lost someone in your family in the war.
Now there are these companies, there was inflation, these companies were making big profits. You
know what people started doing. They were angry with the companies, they didn’t like
Communists either. They weren’t going to go to communism but they boycotted buying a lot
of things. They started by boycotting all these companies, that they thought were making
obscene profits. That started a recession. Prices started falling.
Then they started worrying about prices falling. So they held off buying. Anyway, that is the
whole, that is my answer, what was happening in 1920‑21.
I want to move to the great depression. In the great depression, what was the narrative?
It was 1920‑21. Everyone thought it’s going to happen again. That is why president Hoover
said it would be over soon, 1920‑21 recession ended quickly. Why did it end quickly? James
grant writes about it but not convincingly to me. I think it ended because people were
looking at price declines, prices came down, there are so many things to tell you about,
so many narratives, they seem to be like a constellation of narratives around a common
theme. But I want to get to the great depression. Why did we have the great depression? Friedman
and Schwartz, what I like about the book is they are there ready to tell you why everything
happened. But it’s always because of the Federal Reserve. Maybe oversimplifying.
(laughter). At least they have the story. It’s Benjamin
Strong again and he failed us again by dying in 1929. That was the end of that.
What really big thing happened was 1929 stock market crash. This you can see is the newspaper
cut for the word crash. It is scaled by the number of ‑‑ stoke crash of 1929 was
almost the first time that anyone had ever used the word stock market crash. They didn’t
talk about it. The language changes. It’s hard to do research.
But so I was, now I’m trying to pretend like I was alive in 1929 and understand. First
thing that struck me is that they started talking about stock market crash a little
bit in 1926. That is for the first time. What was going on?
I was a undergraduate at the University of Michigan, and my professor there, Charles
Livermore, history 322, individualism versus collectivism, I took it when I was 19 years
old, I’ve been thinking about it ever since. He assigned to us a book by Frederick Louis
Allen written in 1931 called, Only Yesterday. A informal history of the 1920s. But he was
writing from 1931. Frederick Louis Allen said that the 1920s
was a period of prosperity, sexual liberation, women were now wearing short skirts, and they
would go off without any male companion and go out drinking at bars. There was discomfort
with this. There was also a lot of financial fraud. There
was a sense of moral indignation. But you couldn’t say it, because it was not politically
correct to use Donald Trump’s term. But there was this sense that there was something immoral
about the 1920s. 1929, right after the crash, the Sunday after
the crash, I went and read sermons by ministers. They loved this crash. It was the day of judgment
arriving. Frederick Louis Allen in his book said that there was a change in spirit and
mentality in the great depression. Skirt lengths went down. This is not a joke. You have heard
about the skirt length theory of the stock market.
But it’s really not a joke. Women in the 1930s felt repelled by the 1920s. They didn’t want
to be part of it anymore. They started going to church more regularly. Also they didn’t
want to spend money because in the 1920s, the great Gatsby era, they wanted to show
off how upper class they were but it became unfashionable in the 1930s to show off your
wealth, because other people, there is all these people unemployed. It is just not nice.
They wouldn’t do it. So demand fell. That is my story of the great depression.
I can maybe go on more but it’s a narrative story. The interesting thing is, great depression
as a phrase was not used very much in the Great Depression. You probably naively and
I don’t mean to accuse you of naivete but you imagine they had a name for it, the great
depression. But actually, there was a book written with the title, the Great Depression.
I used to think that meant that everyone was reading the book. But in fact, only economists
read the book. People didn’t have a name for it. They just thought hard times, or they
liked the word bread line. Which we have almost forgotten, that was the line you stand in
to get food in the great depression. But then great depression started to grow in our culture,
growing slowly and steadily. I used to think it was John Kenneth Galbraith 1955 book ‑‑
1929, I forget the exact title. You have the exact title? What is it? The crash of 1929.
Well, there, it’s somewhere in there. It really doesn’t show on here. It’s not John Kenneth
Galbraith so much, it’s everyone talking to their children about this horrible depression.
Somehow it got legendized. It was growing. Google N gram stops in 2008.
It doesn’t let me look at the crisis but news and newspapers absolutely took off in the
financial crisis of 2007. That was the story. The story was scary. That we could be in another ‑‑
all the banks are ‑‑ it seemed to fit the story, the narrative of the great depression,
the banks collapsing, unemployment rising. Stock market crashing. I’m at the end of my
show, I guess. Let me just say something at the end, I’d
like to know why it is that economists don’t study narratives. Maybe it’s because they
have better things to do. This isn’t the only thing. I’ve actually, last year I was president
of the American economic association. I had to immerse myself, economists do lots of different
things. And it’s really pretty wonderful what they do.
However, they miss things. One of the things they really missed is the big story, I think,
behind many of our economic fluctuations. Why do they miss them? One of them is that
they have a toolkit. We do simultaneous equations, general equilibrium, by the time we finish
teaching those, we are tired. At least we view this as somebody else’s territory.
That is another department. I think that there is room for economists to do research on narrative
economics. Now that we have all these databases, we can search for narrative. We can do quantitative
analysis. I don’t think it’s easy to study the very
human phenomena of narratives. We can make mistakes. But I think it involves, it might
require collaboration with people in the humanities. People like literary theorists who try to
understand why some stories structures work and others don’t. Why they have their times
and other times they don’t work. Narrative economics is already growing. I’m optimistic
that in the next, these things all take time, in the next ten, 20 years, we will have a
better understanding of economic fluctuations. Maybe I’ll stop there.
(applause). Thank you.
>>Now we will have a conversation with Robert Shiller, John Levy and we will have questions
and answers from the audience.>>Good evening. Thank you for coming to Chicago.
I agree with you, there are so many narratives. It seems to me that one of the challenges
is choosing a narrative, a analytical narrative to make sense of them or prioritize them.
I want to ask a question about economics as a narrative and why you became the kind of
economist that you are. Many economists make some pretty restrictive assumptions about
human motivation, human behavior. People are self‑interested, they are rational.
It seems like in the late ’80s you started doing something that ‑‑
>>ROBERT SHILLER: I got married to a psychologist.>>Is that the answer? You started to do surveys
and listen to what people were saying. The reasons they gave for why they acted the way
that they did. Why did you want to do that?>>ROBERT SHILLER: You are pointing out something
that I did that is quite unusual, I do my own questionnaire surveys.
Some economists do it. I’m not alone. But it is not common. It’s also the kind of thing
that I thought wouldn’t benefit my career. For example, on that October 19, 1987 stock
market crash, I stayed up all night that night, preparing a questionnaire survey. I wanted
to find out what people were thinking on the day of the crash. It was the biggest crash
ever. I never submitted it to a journal. I put it in the last chapter in a book that
I wrote. Why did I do that? I already had tenure.
I just didn’t care. The other question, it still puzzles me, why didn’t anyone else do
it? In 1987, the Brady commission point by the president did do a survey, three months
later, that is too late, I think people don’t remember what they were ‑‑ why is it?
>>I like the answer, tenure is a good thing. We should keep it.
>>ROBERT SHILLER: I’m in support of tenure also. Yeah. That’s a good point. Because if
you are too afraid of consequences, after a while you get a idea I want to do something
that is interesting to me.>>You mentioned post truth. I don’t want
to accuse you of being post truth but I want to ask a question about how far we can take
narratives as explanations. One reaction, I’m not a economist but what about the fundamentals,
about supply and demand, larger economic forces? Is this something acting in dialogue with ‑‑
>>ROBERT SHILLER: Right. There is a whole, I mentioned real business cycle theory, the
real business cycle theory by Prescott and many others was a fad for a while, and it
still exists, but it assumes that the only thing driving the economy is technological
change. It has a model of psychological change as
exogenous discovery. Scientists is working in his lab and he spills something and he
realizes there is something here. It’s completely random.
In fact, I don’t think technological progress is like that. Joel Moker’s book, culture of
growth which just came out, argues that the reason why we are so much better off now than
we were 300 years ago, is because our culture has changed, not because of randomly arriving
inventions. I guess we are still in a primitive stage
in understanding macrofluctuation. If we can have a controversy as basic as that, if we
can have a school of thought which says there is no role for anything except technology,
I’m taking the other extreme.>>It was fascinating to hear accounts of
historical depressions and the narratives that were underlying them. I was struck by
how many of narratives seem to be moral narratives, about morality. Does that hold across?
>>ROBERT SHILLER: I believe that it’s not mentioned enough by economists. Another example
you may well remember is September 11, 2001, that is the world trade center and the pentagon
bombing. You may remember that president George W. Bush got on television and said, don’t
let those terrorists deter you from leading a normal life, because that is what they want.
That is what they were trying to disrupt us. You know what? We were already in recession,
when the terrorists struck. We came out of it right at that point. I suspects, I don’t
know how to prove that, tell me if there is any way I can prove this that it was people
heeding that, I hear people saying things like that. I’m not going to let this scare
me. That is a moral decision. That is why I look at sermons. Economists never read sermons.
>>They give sermons.>>ROBERT SHILLER: They give the sermons.
(chuckles).>>Let’s talk about Trump. I tried to hold
off as long as I could. The question I have, and it relates to the larger idea of narrative
economics, is which narratives succeed? Does the propagation, you gave the epidemiological
account of resemblance of thought viruses as you put it but how can we think about which
thoughts become viruses and which don’t? You mentioned Adam Smith, from the 1880s, I didn’t
know that. If I had to guess it’s because of debates about free trade and protection.
>>Absolutely.>>Smith’s ideas were appropriate.
>>ROBERT SHILLER: It’s also a very well written book.
>>Why does Trump’s economic narrative, why do you think it’s so, I mean clearly he is
a promoter, he comes from a, he has particular skills which we would think would lead him
to be able to propagate his ideas effectively. But nevertheless, why, his kind of nationalism,
populism, why is that succeeding right now do you think?
>>ROBERT SHILLER: I didn’t predict his election though we gave a lot of money to Hillary just
too late. We started to worry, two weeks before the election, my wife and I, so I didn’t,
but these are somewhat random. I was talking with Jonathan about the number of musical
groups that have only one hit. Something clicks. There is something in the human brain that
responds to certain songs. I don’t think we understand that.
Who does? Someone in the room who understands can tell me.
>>I don’t think I ‑‑ I think the idea of make America great again, everybody gave
a speech, a campaign speech, in Pennsylvania, got up and said we are going to bring the
steel factories back, I don’t think anyone there actually believed he would do that.
It seems to be a, A, kind of fantasy. That seems to be part of it. I’m curious how fantasies
might play into these narratives. Second, it seems to be a nostalgia. The entire
campaign. Sanders had a nostalgia for postwar democracy. Hillary had a nostalgia for 1990s
globalism. There seems to be a moment now where we are stuck on the past perhaps.
>>ROBERT SHILLER: I’m not an expert on Donald Trump. A good part of it is his maligning
of Hillary Clinton. He used the tactic that he used from world, he learned from world
wrestling name‑calling. Another thing about Trump, he is fun to watch.
You probably agree he is fun to watch. He makes your day. You read his antics, he did
some ridiculous tweet today. He gets people talking. It’s his particular way of doing
this. At this moment in history, partly at this moment in history people are annoyed
by political correctness, and he was at times unusually truthful. I think he did it, for
example, during one of the debates, it came out that he had donated to Hillary Clinton’s
campaign. He was asked about that. If I remember correctly, he said, I did that, everyone does,
I’m a businessman. I get a payoff from that. How could he be so candid, and then someone
asked what was the payoff. He said I got invited to Chelsea’s wedding.
I was thinking for a moment, why is that such a payoff? Then I thought of course that is
a huge payoff, because he is always going for prestige and visibility. Being at her
wedding, he will be photographed there. He doesn’t care, I think so much about money.
He wants to be the big important guy. He was actually truthful at that moment. In a time
when the other men were all looking bland, he was fun to watch.
>>You wrote a book called irrational exuberance.>>I did.
>>Yeah, you did.>>Then the stock market tanked. You brought
out another edition in 2005 that said the housing, there is a housing market bubble
and the housing market tanked. Do you think there is a ‑‑ a kind of rational exuberance
in the markets now. I think of the bond markets ‑‑>>You are asking now.
>>Right now. When you think about Trump and the politics of fear and politics of anxiety.
>>ROBERT SHILLER: You have to read those newspapers.
>>Exactly. We have Dow ‑‑ you see the exuberance back in financial markets being
brought about by his election?>>ROBERT SHILLER: Maybe but I’m not advising
you to buy now. (chuckles). The other thing on the USA Today this morning,
house flipping is back. House flipping is buying a house and selling it six months later
at a big profit. Apparently, my impression too that it’s coming back.
Yeah, it could happen again. We could have another big boom, it would be the Clinton
boom like the Coolidge boom. I didn’t mention Coolidge in 1920s, he was kind of like Trump,
president Calvin Coolidge, in that he, Coolidge was pro business, he said the chief business
of America is business. He appointed Andrew Mellon secretary of treasury, one of the richest
men in America, founder of the Mellon Bank. You knew in the 1920s, we had a pro business
Republican government, that wants us to do well. He is not going to regulate us or tax
us. That is exactly the same thing that we have now.
We could have, I see it as a plausible scenario that we could have another 1920s, and maybe
we will end in what would be 2019 or 2020, I don’t know. Could end badly.
>>It’s true leading up to the vote and Brexit there was fears if Brexit happened it would
be a economic disaster. It hasn’t taken place yet, not in the financial markets and similarly
with Trump there would be a meltdown. Actually the opposite occurred. I’m wondering if a
nationalist or anti globalist narrative might be behind some of the movements we are seeing
in financial markets. I wouldn’t like to think so myself. But having success ‑‑
>>ROBERT SHILLER: Also a fading of the World War II narratives. There was always patriotic
French men and English men and Germans but they are so ashamed of what happened back
then. But now they just don’t remember it. That is the simple forgetting.
>>That was a fascinating aspect to have memory of past economic moments, feeds back into
the present and shapes the future. I wanted to ask you a question, because I know we have
an undergraduate class that I spoke to a few weeks ago that is economics class on inequality,
and inequality is a important issue, political debate but also economic debate. I wonder
if narrative economics might help us think through this issue.
>>ROBERT SHILLER: Right. Inequality is a huge issue. It’s going to be a big issue in
the future because of technological progress. Donald Trump was aware, he is a sensitive
person, he is aware of what bothers people. Being laid off when you are 40 and looking
for a job, you get the impression I’ll never get a job like I had before.
That creates a lot of anxiety. But I don’t think Trump wanted the Hillary Clinton narrative
which is we will tax the rich and support you. Because it wasn’t inspirational. He had
a different legacy. On Apprentice, the TV show he showed young people how to get rich.
He wrote a book with the title, he didn’t write it, Meredith MacGyverer wrote it but
it has his name on it as if he wrote it. I give Meredith credit, she did make it sound
like Donald Trump. It does exemplify his explanation of philosophy of life. I’m quoting Meredith,
think big, live large. You want to have big bashes, champagne receptions,
solid gold things, and in the long run, it will make you famous and successful.
>>Thinking about these issues and how economics might incorporate them, in the next ten, 20
years, how much of this kind of behavior, think about emotions or anxiety, can be expressed
in math?>>ROBERT SHILLER: In math.
>>Yeah, in math. Can you model it?>>ROBERT SHILLER: There is also recently
a lot of talk by people who think there is too much math in economics. I don’t, just
as there are people that say there is too much regulation. I don’t think these are things
you can quantify. It is a question of how applicable is it. I think there is a lot of
nice ‑‑ I went into economics because I liked math. There is a lot of nice mathematical
economics. There is a lot of bad humanistic social science
too, I’m sure. I’m not making any blanket statement here.
>>First, John, thank you very much. We are open for questions. I’ll call and if you wait
too get a microphone, somebody will bring it to you. Yes, please.
>>Professor Shiller, I think this was your website but you have a website dedicated to
your Shiller P.E. and I notice that the P.E. was roughly 2 points below black Tuesday in
1929. Is this that predictive ability?>>ROBERT SHILLER: Yeah, I just rechecked
my, it’s almost my cape ratio is almost 29, and it’s well above what it was in 2007.
It’s getting closer to what it was in 1929. But it’s not as high as it was in 2000, beginning
of 2000, when it was over 45. This thing seems to predict, has historically.
>>P.E., this is price to earnings ratio.>>ROBERT SHILLER: Yes, earnings are a measure
of the profits, how much money the company is making. It’s long history of looking at
the price divided by earnings. It should be something like 15 or twelve. But when it gets
up to close to 20, people think it’s too high. Up to 28 right now. It suggests to me that
there is some irrational exuberance. But I don’t like to give advice on, because I think
it might really go up. And then come crashing down.
I just don’t know where it’s going. What I’m saying is, if you are retired and living off
of your stock market investments, I wouldn’t do a massive margin purchases right now.
(laughter).>>Please.
>>Here is the mic.>>Thank you. My name is Dan, alumni of the
college with a degree in economics. Given the pervasive magnitude of narratives, Deirdre
has been talking about this a couple decades and it’s formulating and describes real events
in the economy, is there a gap in our macroeconomic theory that we don’t have a place holder to
describe this factor of production? I’m curious, if I can go on, if we think about, if monetary
policy is money is a communication transaction tool and products tell stories, is there an
opportunity to formalize the concept of communication and narrative within basic principles so that
we have this formalized, it’s where mathematical equations meet human language in a sense.
So kind of give that sense. Thank you.>>ROBERT SHILLER: That is a grand objective.
I imagine it can be somewhat formalized. Now, I think you mentioned monetary policy.
Monetary policy has already been informally shaped by, an intuitive appreciation of narrative.
When the financial crisis occurred, Ben Bernanke who was chairman of the fed I believe reacted
to it from the broad depth of his knowledge about the great depression. And not wanting
that to happen again. Even though he didn’t formally say anything
about narratives, I think it must have been on his mind.
Another example is when northern Rock, a bank in the UK, had a run, in other words, depositors
were afraid that it was going to fail so they were all showing up and trying to take their
money out, and if everyone does that, the bank will certainly fail, so what, they didn’t
have full deposit insurance in the UK. The bank of England just said, we will bail it
out, we won’t let this bank fail. They did that quickly. Why did they do it? Intuitively,
it was Mervyn King knew that the UK had not had a bank run since 1866. And the public
just was not worried about bank runs. He didn’t want one now, and so even though
it divide all standards of justice, he just bailed them out. That was a important decision
based on, I think we have a common sense of view when we see history happening of the
importance of narrative. But how to formalize this, I think it’s not
impossible, at least partially to formalize it. But we are not there yet.
>>Question right there.>>Thank you so much. My name is Pablo. My
question is related to formalization.>>Speak a little slower.
>>Yes.>>Thanks.
>>My question is related to formalization, if you can elaborate a little more in the
link between the narrative and the behavior decision‑making, if this goes through expectations.
Then I have a second one very short. In your method about the (overlapping speakers).
>>You are hard to understand.>>Narratives and behaviors.
>>But it’s about narrative and behavioral.>>Yes, how can you use narratives to explain
behavior in a formal way?>>ROBERT SHILLER: The word behavioral economics
has usually referred to psyche department. Whereas narrative economics, maybe it’s more
anthropological something.>>In terms of meeting expectations, if narratives
shape expectations or [inaudible] payoffs of decisions.
>>ROBERT SHILLER: Economists like the word expectations, it goes to Irving Fisher in
the 1930s who developed formal models of expectations. The problem is that maybe that was not quantifying
human behavior right. George catonna in the University of Michigan in the 1950s was doing
surveys, led to the Michigan consumer sentiment index, and he asked initially, he asked people
what is the expected inflation rate for you? What is the GDP growth rate? After doing that
for a while, he thought, he wrote it in his 1975 book, psychological economics, that you
know what, they were just making up answers. They don’t know. It seems we want to move
to measure things that are consistent with phenomenon. What people have is not expectation.
It my say some number that they saw somewhere but they don’t necessarily even believe it.
Pollsters have problems getting true elucidation of true beliefs. You can learn more by asking
people to tell stories. If they are telling a 1929 story, that is cause to be worried.
>>Question here.>>Thank you. My question is, can Trump ruin
United States generally? Can Trump ruin United States, as a country. Not only economy, because
it’s part, but generally.>>ROBERT SHILLER: I’m not a Trump supporter.
But I don’t like to be too negative. He hasn’t called me yet for advice.
But if he does, I’ll probably try to help him. What’s that?
>>Tell him not to ruin the United States.>>ROBERT SHILLER: Create a trade war ‑‑
actually I said this at the world economic forum. We had a discussion group on Trump
there. Nobody brought up, I thought the worst thing he’s done is to bring up the idea of
improving our nuclear arsenal. And then also saying that it wouldn’t be a bad thing if
Japan and South Korea and other countries got nuclear weapons.
That is really bad, I think. What was he thinking? Because he is starting, the whole point to
me is that it starts a different psychology. Then people think everyone has to have atomic
bombs. I thought we had figured that out, that we try to calm everything down.
That is the worst thing, the worst thing. And it was in the news this morning that the
atomic clock had been moved forward to, what was it, 2 and a half minutes before midnight
because of Trump. It could be really bad if he gets a nuclear arms race going again.
>>Do you have a question there?>>Yes.
(someone speaking off microphone).>>Question about the narrative question that
the previous questioner asked, because I’m wondering if people are using the narrative
form, in a form of microhistoria to explain the household decisions and thought process
behind them that affect major economic developments. I’m thinking in terms of the decline of the
middle class in this country, and it’s hard for me to believe that a good part of it is
due to, isn’t due to the fact that the actual appeal and valuation of traditional middle
classwork has declined in this country, compared with entrepreneurialism and brilliant developments
in various fields and creative fields. I’m wondering, are people looking at writing
this from a individual point of view taking testimony and histories of individual families,
looking at their thought processes, on how educational decisions are made, and how career
planning is done, for example?>>ROBERT SHILLER: Are you asking are people
doing this?>>Yes.
>>ROBERT SHILLER: I don’t know what people, when you search on Google for narrative you
come up with so many things. I hope some people are doing that. One thing that is striking
to me about the current narrative is that it’s negative on the intellectual elite. And
it’s negative about our universities. That is a worrisome, I assume present company
are not negative about universities. But this middle class that you talked about that is
disaffected. They think of conspiracies, the universities are run by Communists, it’s an
unfortunate turn of things which empowers Donald Trump who is willing to throw the bums
out, and not ‑‑>>I’m not talking about that. I’m talking
about the individual decision‑making processes, the cultural feelings toward middle class
work that a lot of middle class families no longer have an affection for.
>>ROBERT SHILLER: For example what?>>Take engineering or drafting or computer
programming or all these kind of jobs that there are millions of openings, more than
there are people to, qualified to fill them. They are not many more people getting degrees
in computer science today than was the case 30 years ago. It’s especially true of the
native borne middle class or people who used to belong to the middle class. There is just
not a valuation in those kind of careers. People want to strike it rich. People want
to develop a start‑up and go from 0 to billion dollars in valuation or be a creative maestro
or whatever. But these middle class jobs, the respectable middle class jobs, they go
begging.>>ROBERT SHILLER: Okay, I’m not, quantitative,
I don’t know what to say. I have some impression that what you say is right. But maybe ‑‑
>>Go ahead, you want to say something?>>ROBERT SHILLER: It is a narrative that
I suppose, some people said too many people are going into finance or business, that is
what you are saying in the U.S. today, and not enough into the sciences, is that ‑‑
>>Competitive economy, it’s a matter of people not going into infrastructure maintenance,
electrical grid, all these nonglamorous jobs really. It’s not just a matter of STEM, but
STEM is part of it.>>I’m going to take the liberty of asking
the last question. You have spent your life doing economics and spent your life teaching
at a major research university. And the work you have done in economics has led you to,
there is something internal that makes you want to push out and explore something, namely
narratives. What would you ‑‑ but it’s a field that you haven’t really been given
a lot of training in, given the structure of education, and that you received, and that
is being passed on. I wonder if in a lifetime of teaching at a great university and also
doing research in the context of a university, what would you suggest for structural changes
in the way we teach and the way we ‑‑>>ROBERT SHILLER: I think it’s academia has,
is pushing us, the rules of the game are pushing us to specialize research at the frontier,
which is good in many ways, but it also helps us, has us lose the grip on the, I think we
should be talking to people of different disciplines. I was going to, again congratulate the Neubauer
Collegium for doing ‑‑>>Leading question.
>>ROBERT SHILLER: But do I have any other solutions? I think it’s always, I think academia
is in fairly good shape compared to what it was. If you look a hundred or 200 years ago,
they were finishing schools for rich boys, and pathways to becoming a minister in a church,
which is okay, but it’s not ‑‑ we do so much more. We are actually much better
off. I actually like the life as a professor, even
if I am sometimes pressured toward directions I don’t always like.
Another thing is I think that the world is really going to change with the advent of
new computer technology. Already, I have an on‑line course, you can take my financial
markets course, on course era for free if you want.
I was wondering where we are going with artificial intelligence, and how we all fit in. We have
to discover that. I think maybe we will become a more human
society in reaction to all these machines. Maybe our university, our class sizes will
fall. We will have more teachers, much more teachers, we will have much more relations
with our students, maybe that will change the environment. Heart‑to‑heart talks
with your faculty advisor may help. But you are getting me on, this is not my
expertise.>>I wanted to know what you thought.
I think it’s time to thank Robert Shiller for a wonderful talk and a wonderful evening.
(applause).>>ROBERT SHILLER: Thank you.




Comments
  1. hubris to hubris – A Nobel Prize, Yale professor and publisher explaining what the middle-class thinks? Answer: Short the markets and soon with his excellent p/e ratio warning…..or at least sell to maintain your retirement. The rest is stroking U. Chicago dreamers who desperately want to have his life. Trump controls the masses – not U. Chicago or Yale. The real question will be will the masses remove Yale and U. Chicago from the dialogue physically as did the communists did the Tsar's family?

  2. The truth is faith-based until we are force fed it by machines in a self-fulfilling prophecy circle-jerk. And then some genius re-writes the matrix maybe we don't need the machines (for everything).

  3. Is Levy just not interested or offended by Shiller publically implying that he did not vote for Trump. Levy seems not to enjoy this discussion/interview. Shiller's paper is only the start of including narratives in an economic framework. Shiller is opening the horizon for this research.

  4. like Jim Grant you are ignoring the primary cause of the 1920 so called depression. The world war one economy ended during 1919 and the government and export orders, and they were very large relative to the us economy ended very rapidly, with the end of world war one.The epidemic of 1919 would also be an additional negative impact to gross demand in the US at the same time. So factories and labor saw lower capacity use . So the 1920 depression was resolved quickly because it was an external shock of export and federal demand and could be resolved by market adjustments . 1929 was due to the internal workings of the US economy and was intractable until world war 2.

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