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."

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."

Recommended

Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
18 Jan 2021
Bill Ackman: beware of short-term market volatility
Investment gurus

Bill Ackman: beware of short-term market volatility

Bill Ackman, founder of the Pershing Square hedge fund, is upbeat on prospects for markets in 2021, but is worried about short-term volatility as coro…
27 Nov 2020
Jeremy Grantham: US should focus on “green” infrastructure spending
Renewables

Jeremy Grantham: US should focus on “green” infrastructure spending

Jeremy Grantham, co-founder of asset manager GMO, says the US must set out on a new “green” Marshall Plan to tackle climate change.
13 Nov 2020
Jonathan Ruffer: tech stocks have become “long-duration assets”
Tech stocks

Jonathan Ruffer: tech stocks have become “long-duration assets”

As with bonds, tech stocks are now held not because of that they are, but because of what investors fear if they don't hold them, says Jonathan Ruffer…
16 Oct 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
When will the US stockmarket bubble burst?
US stockmarkets

When will the US stockmarket bubble burst?

With US stocks more expensive than before the Wall Street crash of 1929, there are growing signs of “mania”. But what will push markets over the edge?
22 Jan 2021