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Story Time For The World Economy by Robert J
Story Time For The World Economy by Robert J
Story Time for the World Economy by Robert J. Shiller | Project Syndicate
Robert J. Shiller
Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. His book Irrational Exuberance presciently warned of the dot-com bubble, and a second edition, released in 2005, predicted the coming collapse of the real-estate bubble. His most recent book, co-written with George Akerlof, is Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.
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Story Time for the World Economy by Robert J. Shiller | Project Syndicate
news may be revealed. The only way world confidence can return dramatically is if our thinking coordinates around some inspiring story beyond that of the price increases themselves. In my 2009 book with George Akerlof, Animal Spirits , we describe the ups and downs of a macroeconomy as being substantially driven by stories . Such narratives, especially those fueled by accessible human-interest stories, are the thought viruses whose contagion drives the economy. The contagion rate of stories depends on their relation to feedback, but plausible stories have to be there in the first place. The narratives have substantial persistence in that they affect our views. The story that drove the worldwide stock-market bubble that peaked in 2000 was complex, but, put crudely, it was that bright, aggressive people were leading the way to a new era of capitalist glory in a rapidly globalizing economy. Such people became new entrepreneurs and world travelers on the way to prosperity. This narrative seemed plausible to casual observers, because it was tied to millions of little human-interest stories about the obvious successes of those friends, neighbors, and family members who had the vision to participate enthusiastically in the new environment. But it is hard today to re-create such a narrative, given so many stories of trouble. The stock markets rebound since March seems not to be built around any inspirational story, but rather the mere absence of more really bad news and the knowledge that all previous recessions have come to an end. At a time when the newspapers are filled with pictures of foreclosure sales and even of surplus homes being demolished it is hard to see any cause for the markets rebound other than this all recessions come to an end sooner or later story. Indeed, the capitalists triumphant story is tarnished, as is our faith in international trade. So, here is the problem: there isnt a plausible driver of a dramatic recovery. Starting an economic recovery is like launching a new movie: nobody knows how people will react to it until people actually get to see it and talk about it among themselves. The new movie Star Trek , based on yet another remake of a television show from more than 40 years ago, surprised everyone by raking in $76.5 million on its first weekend. That old story just got some excitement back with this new movie. Similarly, we have to hope that some of the same old stories that propelled us in the past the rise of capitalism and its internationalization throughout the world economy can somehow be dusted off and revived yet again to invigorate the animal spirits that drive economic recovery. Our efforts to stimulate the economy should be focused on improving the script for those stories, making these stories believable again. This means making capitalism work better, and making it clear that there is no threat of protectionism. But the rationale must be to get the world economy out of its current risky situation, not to propel us into yet another speculative bubble. This article is available online at: http://www.project-syndicate.org/commentary/story-time-for-the-world-economy Copyright Project Syndicate - www.project-syndicate.org
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