Advertisement 1

Philip Cross: Beware powerful narratives that contradict the facts

Nobel-price winner Robert Shiller argues that economists need to pay more attention to the narratives that are shaping our behavior

Article content

Narratives have long been fundamental to political messaging. Watching the Trudeau government heavily promote the narrative that its decision to use WE Charity to distribute money to students was based on passively accepting the recommendation of a “neutral, non-partisan” civil service is a daily reminder of how they can be manipulated to distort public perceptions.

Advertisement 2
Story continues below
Article content

In his recent book, “Narrative Economics,” Yale University’s Nobel-winning economist Robert Shiller argues that the economics profession has been slow to recognize the importance of narratives. He argues that studying narratives would improve the abysmal record of economists in forecasting recessions and enhance their understanding of phenomena such as bubbles in asset markets. Shiller is an expert on bubbles, having famously spotted their formation in both the stock market before 2001 and the U.S. housing market before 2007.

Shiller defines a narrative as a thought virus spread by 'the word-of-mouth contagion of ideas in the form of stories'

Article content

Shiller defines a narrative as a thought virus spread by “the word-of-mouth contagion of ideas in the form of stories.” Narrative economics is “the study of the viral spread of popular narratives that affect economic behaviour,” and the effort to make them more contagious. Narratives are particularly powerful when amplified by celebrity. An excellent example is former Bank of Canada governor Mark Carney’s injudicious musings about “dead money,” still widely cited by this country’s legions of critics of the business community. Climate change is another powerful narrative fused with celebrity to brow-beat the public into accepting poor policies that are harmful to the economy and do little to change the climate.

Advertisement 3
Story continues below
Article content

Economic narratives appeal to people because they offer easy explanations for how something as mysterious as the economy works and how individuals can use that insight to their own advantage. There are many examples of economic narratives that came to be widely circulated. One that helped fuel the bubble in the U.S. housing market before 2007 was the falsehood that house prices had never fallen in every region of the country at the same time (they did in the 1930s). Another is that stock prices are a random walk, which means an investor cannot beat the market. In fact, Shiller notes, “There is now a professional literature that finds imperfections not predicted by the theory.”

Recommended from Editorial
  1. Philip Cross: Since assuming power in 2015, the Liberal government has showered money on persons, especially groups that vote Liberal in large numbers, such as youths and single moms.
    Philip Cross: Ottawa’s anti-business bias evident in emergency aid programs
  2. The civil service is not neutral about pursuing its own interests.
    Philip Cross: The civil service is not neutral nor non-partisan
  3. None
    Philip Cross: Suddenly ‘dead money’ is a dead idea
Advertisement 4
Story continues below
Article content

The most recurring narrative cited by Shiller (the only one that takes up two chapters in his book) is the angst workers feel about being replaced by machines. This narrative first appeared as the Luddite movement in early 19th-century Britain and has never disappeared. It has resurfaced — often virulently — as an explanation for almost every economic contraction since. Labour-saving machines were blamed for unemployment during the 1873-79 depression, the slump in the 1890s and the Great Depression of the ’30s. Fear of automation was vividly depicted by Charlie Chaplin in his 1936 film “Modern Times.” The now largely forgotten 1957-58 downturn was called the “automation recession,” while the 1982 recession was blamed on “new automation.” Today the fear of labour-saving machines is morphing into a dread of artificial intelligence. Just as labour-saving technology threatened to replace human muscle with machines, artificial intelligence supposedly will replace the human brain with a computer. Both beliefs show how deep-seated the fear of mass technological unemployment is.

Advertisement 5
Story continues below
Article content

Narratives are especially powerful when similar ones reinforce each other, creating a tsunami that sweeps aside rational thought. We can see that today as the public’s latent fear of automation combines with narratives about growing inequality, dead money and job insecurity in the “gig economy,” to justify calls for a guaranteed annual income. The fantasy is that rich people and corporations are hiding large pots of gold that could be taxed and then redistributed to a middle class threatened by technology. None of these narratives is supported by the facts, but the power of narratives is that they need only accord with popularly accepted perceptions and do not require factual support.

Narratives in Canada increasingly are being imported directly from the U.S. without regard for whether they fit our circumstances. This testifies to the power of social media, even more than mainstream media, to promote false narratives. A good example is the idea that inequality is widening in Canada as it has been in the U.S. The reality is that the share of incomes for our top decile of earners have fallen over the past decade. Nevertheless, left-wing parties in Canada make demagogic appeals to tax the rich more, when Canada’s real problem is we don’t have enough rich people. Shiller is right that we need to guard against the power of misleading narratives that contradict the facts.

Philip Cross is a senior fellow at the Macdonald-Laurier Institute.

Article content
Comments
You must be logged in to join the discussion or read more comments.
Join the Conversation

Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.

Latest National Stories
    News Near Tillsonburg
      This Week in Flyers