Advertisement
Features

Robert Shiller: we could talk ourselves into a crisis

Robert Shiller, the Yale economics professor and winner of the Nobel Memorial prize, believes "stories" can affect economics.

Robert J Shiller © Pedro PARDO/AFP/Getty Images

Now, in his latest book, Narrative Economics, he argues that economists must stop focusing purely on economic data, and pay more attention to another "important driver of economic change, which is narrative." Stories affect behaviour, which in turn affects economic outcomes. For example, Shiller argues that a respect for frugality actually worsened the Depression. "It wasn't proper to live high and show off, you had to be more modest, which is a narrative that encourages curtailment of expenditure."

Advertisement - Article continues below

What narratives are we in danger of falling for today? Shiller reckons the obsession with the inverted yield curve (which is seen as a reliable indicator of pending recession) is a good example. "Before 1970 there were virtually no mentions of it." But then "it started to catch on and every successive recession had a stronger talk about an inverted yield curve... it is a self-fulfilling prophecy."

The asset that worries Shiller most today is an old enemy US property. Prices are now slowing, after years of rapid growth, which also happened ahead of the 2006 crash. "It would not surprise me at all if in the next year or two we saw modest declines in home prices and if things play out right, there could be bigger declines."

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Abby Joseph: US markets have no margin for error
Investment gurus

Abby Joseph: US markets have no margin for error

Much of the markets' recent strength is down to the US Federal Reserve using monetary policy to backstop the equity market, says Abby Joseph Cohen, se…
31 Jul 2020
Christopher Wood: hold a growth and value “barbell“ portfolio
Investment strategy

Christopher Wood: hold a growth and value “barbell“ portfolio

Christopher Wood, global head of equity strategy at investment banking firm Jefferies, suggests a “barbell“ strategy of holding growth and value stock…
10 Jul 2020
Terry Smith: I'm not used to being ignored
Investment gurus

Terry Smith: I'm not used to being ignored

Running a £20bn fund doesn’t guarantee good treatment from the companies you invest in.
22 Jun 2020

Most Popular

BP has slashed its dividend – and markets love it
Income investing

BP has slashed its dividend – and markets love it

BP has bowed to the inevitable and cut its dividend in half – and its share price promptly rose. John Stepek explains what it means for shareholders …
4 Aug 2020
Listed companies are dying out, and that could have serious consequences
Stockmarkets

Listed companies are dying out, and that could have serious consequences

Private equity is taking over from public stockmarkets as the biggest provider of capital to companies. That’s bad for investors and bad for society a…
3 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020