Preface to the 2020 Paperback Edition Since the Hardcover

Preface to the 2020 Paperback Edition

Since the hardcover edition of Narrative Economics: How Stories Go Viral and Drive Major Economic Events was published about a year ago, we have seen the sudden outbreak of a new disease, called COVID-19, caused by a novel coronavirus. The severe COVID-19 pandemic and the related mitigation efforts that began in early 2020 have in turn launched a flood of new narrative epidemics, a pandemic of fear of the disease (and sometimes of anger at authorities), of empathy for human suffering and loneliness, and of appreciation of everyday heroism. These topics have dominated much talk around the entire world, sometimes to the exclu- sion of discussion of any other topic. In the United States, Italy, and some other countries, there was initially underreaction to the pandemic— reluctance to social distance and to wear face masks, for example—since common narratives then described past epidemics only in Asia or less developed countries. But then narratives changed, and much talk developed to remind everyone of the 1918 influenza pandemic that severely affected then-advanced countries. The inconstancy of these narratives has led to time-varying public reaction to government mitigation guide- lines. These narrative epidemics will have multiple economic effects through time and have already helped produce the most sudden and sharp world economic recession in history. After the May 25, 2020, death in Minneapolis of George Floyd, an African American, under the knee of a white police officer, we have seen yet another unusual narrative pandemic. It has spawned a rush of pro- tests against police brutality and racism, not just in the United States but also around the world. There has also been some vandalism and rioting, particularly in the United States. The new public consciousness of police brutality may seem to be unrelated to COVID-19, but it is not really so, for COVID-19 and the narrative epidemic about it put people on edge. As argued later in this book, innovations in storytelling, like x Preface to the 2020 Paperback Edition mutations in viruses, in the right emotional environment can propel contagion. The video of the police officer, with a smug facial expression and his hand apparently casually in his pocket, slowly killing George Floyd was perfectly awful. In reaction to the horrific video of Floyd’s death, a contagious narrative emerged: that we are all at a fundamental turning point where protest is likely to be effective. Police brutality has been known to exist at times and places for decades, but until COVID-19 there had rarely been a narrative as effective as this one in promoting collective action. It is too soon to tell, but this narrative may lead to fundamental economic changes, involving not just police departments but also labor unions and other institutions, with additional impacts on inequality and economic growth and welfare. All this was stimulated by a video capturing reality in a deeply distressing manner. As of this writing, these pandemics continue. The experience of con- templating these events as they happen around us makes the ideas about narrative epidemics in this book all the more intuitive. For all the trag- edy resulting from them, they reveal the mysterious power of contagion, whether in disease epidemics or narrative epidemics. It is difficult to understand precisely what it is about the COVID-19 genome that makes it so contagious, and it is difficult to know exactly what are the ultimate drivers of major economic events. But a recognition of the viral phe- nomena and a scientific approach to studying them can yield better understanding. We know that the fluctuations and differences in economies are substantially driven by swirls of multiple narrative epidemics, and, as COVID-19 reminds us, sometimes by disease epidemics too. At any given time, some of these epidemics are expanding in their impact, some peaking, some fading. It is becoming clear that economic prog- nosticators must observe this reality. A key conclusion of this book goes beyond those general notions, to the idea that viral popular narratives that are plausibly motivating for economic decisions should themselves be seriously studied and their time paths over years and decades mapped. Epidemiology suggests a mode of study for economists. When the first COVID-19 case was found in December 2019, public health experts already knew how to Preface to the 2020 Paperback Edition xi determine, using reverse transcription polymerase chain reaction methods, that this was a new variant of a family of other RNA viruses and that it could be identified using a testing kit. They knew how to formu- late models of contagion and had estimates of the parameters of the models, estimates that can be revised over time to view the possible changes in contagion. These models then can be used to design methods that can fight dangerous epidemics on a rational basis, offering real hope of eventual success. The models of contagion used by these scien- tists can be extended to describe the contagion of economic narratives and to improve economic policy to combat economic instability. Methods like these seem not to have been much in evidence among economists. Practically no scholarship attends to such study. There are courses on the history of economic thought offered in universities, though these course offerings have been in decline since World War II.1 Even so, the history of economic thought, however valuable, tends to study the pinnacles of economic theorizing by great authors, not the popular thinking of millions of people. It tends to study treatises on optimal government interventions in markets rather than how ordinary folks every day make economic decisions, driven by alternating feelings of inspiration or hesitancy. Yet decades ago, in 1936, John Maynard Keynes argued in the striking chapter 12, “The State of Long-Term Expectation,” of hisGeneral Theory of Employment, Interest and Money that something called “animal spirits”—representing a “spontaneous urge to action instead of inaction”—are drivers of the economy. But no one has ever tabulated exactly how animal spirits actually changed through time. The reaction to Keynes’s theorizing led instead mainly to the study of quantitative expectations. Survey questionnaires ask people to quantify the rate of inflation they expect over the next year. Surveyors ask people how much national economic growth they expect and put the results into consumer confidence indices. By the 1970s, a field of study of expectations was well estab- lished among economists. But it did not seem to capture the breadth of impact of changing narratives or how and why narratives change. Keynes’s use of the phrase “animal spirits” did not go viral immedi- ately on publication in 1936. His name was not attached to the phrase in xii Preface to the 2020 Paperback Edition any of the millions of articles cataloged in ProQuest News & Newspapers until 1958 and then not again until 1972. It was not until the 1980s, and the earliest beginnings of behavioral economics, that there were more than ten uses in a year. Economists preferred instead to think of people as numbers-oriented economic forecasters, like themselves. The economist Barbara Bergmann wrote in 1981: For about 30 years, Keynes’s expositors gave a lot of lip service to the importance of expectations. However, the mathematical models that were developed for forecasting purposes never contained well- developed parts that explicitly described the formation of expectations, or the effect that such expectations had on behavior. There were two good reasons for this. First, no one had any clear idea of how to model the formation of expectations. Keynes himself had emphasized their capriciousness. Second, and perhaps more importantly, there was a strong belief that economists’ main stock in trade was their ability to elucidate the interaction of technologies, tastes and resources in the marketplace. Putting the spotlight on expectations amounted to abandoning their dearly bought expertise on the fundamentals to chase the will-o’-the wisp of moods and spirits.2 But the moods and spirits that she talks about are in principle observable by the very fact that they are public. If we study the verbal exchanges between people, we can see the mutations in their narratives, and we have a front-row seat on their changing virality. Searches of digitized texts are now allowing real information collection on popular narratives. The lesson here is that we can’t avoid using our human judgment about narratives for optimal understanding of economic events. There is also a need for a science of economics and fact collection to inform this judgment better. It is a difficult task to achieve this blending of methods. Most economic recessions are small—with GDP falling on the order of a few percent from its long-term trend. It is going to be hard to establish what causes the small amount of hesitancy in spending during a typical recession. It should be easier for bigger events, like COVID-19, but these come along rarely. It takes time and real work to Preface to the 2020 Paperback Edition xiii come close to disentangling the effect of multiple economic narratives amidst real shocks.3 This book argues that ideas from other disciplines need to be added to economics. High on this list of disciplines are the humanities, like history and literature. Humanists are well aware that the human mind is something far more complex and inscrutable than any machine that is programmed to compute optimal expectations for economic quantities.

1. Mark Blaug, “No History of Ideas, Please, We’re Economists,” Journal of Economic Perspec- tives 15(1) (2001): 154–65. 2. Barbara Bergmann, “The Economics of Expectation,” New York Times, September 20, 1981, F3. 3. See Robert J. Shiller, “Popular Economic Narratives Driving the Longest U.S. Expansion, 2009–19,” Journal of Policy Modeling (2020): forthcoming.