2019-11-04_Time

104 Time November 4, 2019

8 Questions

‘

THERE WILL

BE A RECESSION.

THE QUESTION

IS WHEN. I’M

TEMPTED TO SAY

WE’RE OVERDUE

FOR ONE

’

because if you think a recession is com-

ing, your probable actions will be to

reinforce that.

Is there something about national-

ism that you think goes hand in hand

with certain economic decisions?

Patriotic narratives are more contagious.

I think angry narratives are often con-

tagious. Tribal loyalties are prehistoric.

People would tell stories in the past that

elevated the tribe and give us a reason

to fight for it as a unit. So narratives are

part of human history. Even though we

haven’t always had the Internet and so-

cial media, we have had viral narratives.

Do you think there’s going to be a

recession in the U.S.? Well, there will

be a recession. The question is when.

I’m tempted to say that we’re overdue

for one, because this expansion will be

the longest in history. That’s assuming

the economy isn’t already in recession.

I’m thinking about the narrative and

the stories I’m hearing. I think the talk

of the recession is building up. The sto-

ries are coming in which are probably

related to the trade crisis. And it’s going

back to a 1930s narrative about a tariff

war, a trade war. It’s unsettling people.

It’s causing some people to curtail their

spending. Distrust of President Trump

is building.

How do you think Trump is trying

to control the narrative on the trade

war with China? And do you think

the way that he’s framing that narra-

tive has an impact on the economy?

He is constantly generating news. It’s

what he did on his TV show. He would

send people into conflictual situations,

and then he would fire them at the end

of the show. It’s a little bit like the wres-

tling that he was involved with, where

he actually appeared in a wrestling TV

show, punching another man. It’s what

he knows. If we start a recession, it will

discredit him. And public opinion could

turn against him and make him seem not

so invulnerable. —BiLLY PeRRiGO

W

hat is narrative economics?

I define narrative economics

as the study of popular

stories that are economically relevant,

that have a moral, that are a lesson

that people will take heed of in their

economic decisions.

You write that these narratives can

and do shape the economy. Can you

give me an example from the past

of how a narrative has caused a

recession? The narrative that comes

to my mind for the 2007 through 2009

recession is the housing narrative. There

were a lot of people flipping houses.

That was a new term. And the idea that

home prices have always gone up was

encouraged by the stories of people

making a lot of money selling houses in

that environment. There wasn’t much

attention to the history of price declines.

There was no counter narrative.

How have economists failed to

understand narratives in the past?

A lot of them do understand them, but

they haven’t thought they were worthy

of entry into their pronouncements.

The problem is, as an economist you

can’t rely on what people tell you on

the street. But sometimes it does have

real relevance. The problem is we don’t

have the right kind of survey data. We

have confidence indexes, but they are

based on surveys which ask people for

their outlook in quantitative terms,

without asking about the story that is

motivating them.

The inverted yield curve has been in

the news recently. Do you think the

notion that it always precedes a re-

cession is a narrative? Yes. There’s

a chart showing inverted yield curves

followed by recessions. So maybe peo-

ple remember that visual stimulus. It’s

very direct. People have memories of

seeing it on the news in decades past.

Now it has exploded, and people are

talking about it everywhere. I’m afraid

that it will bring about a recession

Robert J. Shiller The Nobel Prize–winning

economist on the odds of recession, the trade war

with China and his new book Narrative Economics

CHRISTOPHER LANE—CONTOUR BY GETTY IMAGES