“Is the Market Actually Efficient? No, It Is Only a Very Powerful Narrative” — Christoph Gisiger interviews Robert Shiller

Christoph Gisiger interviews Robert Shiller about his new book, Narrative Economics. Robert Shiller also provides some general financial advice based on CAPE.

Interestingly, Robert Shiller is one of the chief influencers of the economic and financial narratives of both the day and the times, and his influence spills over into the social and political narratives, too. One of the powerful influencers of those narratives is the Nobel Prize, which Riksbank undoubtedly knew when they established the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel."

The commonly held view is that there is an objective reality in which we all live and that it is knowable by all. This is the commonsense view or naïve view in epistemology. It doesn't hold up on reflection which has been known for millennia and alternatives debated. 

Basically, humans see through the lens of their "hardware" and "software," the hardware being the common natural characteristic that human's share and the software being the lens that human acquire through social conditioning, which is also influenced by personal disposition. 

Far from seeing reality more of less "as it is," humans use language to construct worldviews that they identify with reality. Humans share worldviews to some extent based on social exposure and interaction, but even here the various worldviews differ based on each persons uniqueness as an individual.

Narratives a "teaching stories" are prehistorical. Humans have always shaped their "reality." Science is an attempt to minimize the subjective and isolate the objective. But many people give science much more credit in this regard than is due, since humans have to operate through the distorted lens of human perception and cognition, and the influence of affect. Philosophers explored this since the begining of reflection on experience and behavior and only recently has this also been investigated "scientifically," in psychology and cognitive science.

Presently, narrative control is big business. Think, for example, public relations, and marketing & advertising, not to mention political strategy, propaganda and the like. Many, many people are employed in this conscious and intentional endeavor not only to shape the narrative but to dominate it.

ProMarket — The blog of the Stigler Center at the University of Chicago Booth School of Business
“Is the Market Actually Efficient? No, It Is Only a Very Powerful Narrative”
Christoph Gisiger interviews Robert Shiller

Narrative Economics: a review — Chris Dillow

Short review of Richard J. Shiller's Narrative Economics. (The links are important.)

How narratives shape presumptions as hidden assumptions, expectations and confidence that affect risk appetite, and behavior, including economic behavior, questioning how "rational" homo economicus actually is. 

The post suggests the importance to TPTB of maintaining narrative control.

Stumbling and Mumbling
Narrative Economics: a review
Chris Dillow | Investors Chronicle

Once upon a time — Diane Coyle

Diane Coyle reviews Robert Shiller's new book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, on the power of narrative, i.e., story. The most ancient from of knowledge transmission in social reproduction was myth. Mythos means "story" in Greek. Ancient cultures were characterized by teaching stories.

This so-called primitive technology (concepts and numbers) still works to influence. Why? Because it is holistic, engaging the spectrum of human response. MMT presentation makes liberal use of narrative technique, e.g., "ten dogs and nine bones." Anyone can get that.

As the preface notes, the idea isn’t new; the 1894 Palgrave’s Dictionary of Political Economy mentions narrative economics. Robert Merton’s well-known concept of self-fulfilling (or self-averting) prophecies covers much of the territory of narrative dynamics. But perhaps today’s economy is more vulnerable than ever to contagion. An early chart in the book illustrates the surge in the proportion of articles across several socal science and humanities disciplines that contain the word ‘narrative’. Economics and finance are well behind history (of course) but also anthropology, sociology and political science.

Anyway, the book is about how narrative contagion affects economic events. It has in mind epidemic models, as well as – well, narratives. Each chapter focuses on a number of examples. The first section starts with Bitcoin as an example of how narrative affected behaviour and outcomes, then introduces some of the concepts concerning how narratives ‘go viral’ and the psychology of contagion. Part 2 is a brief section setting out ‘seven propositions of narrative economics’ (including ‘truth is not enough to stop false narratives’. Quite.) Part 3 describes recurring economic narratives such as financial boom and bust, or automation and jobs. The final part of the book sets out questions for research....

The Enlightened Economist
Once upon a time
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Stephanie Landsman — The market risk that makes Nobel laureate Robert Shiller ‘lie awake worrying'

Combination of low volatility (VIX) indicating complacency and historically high PE ratio, indicating apex of trend.

"We could see a major correction," he said. "This is not a forecast. It's a worry."

Yahoo Finance
The market risk that makes Nobel laureate Robert Shiller ‘lie awake worrying'
Stephanie Landsman

Nobel Laureates — Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

Eliminating rent seeking and toughening enforcement of antitrust laws are “critical” to reducing rising inequality, said two Nobel Laureates, Angus Deaton and Joseph Stiglitz, during a panel of Nobel laureates last Friday. Two fellow laureates, Roger Myerson and Edmund Phelps, echoed their message and warned of a return to 1930s-style corporatism.

“To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced,” said Angus Deaton, recipient of the 2015 Nobel Prize in Economics. Deaton described inequality in the U.S. as being primarily driven by industry rents, and rejected proposals to increase taxes on the rich as a way to reduce rent seeking.

“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.

The panel was part of the annual Allied Social Sciences Associations (ASSA) meeting in Chicago. Fellow Nobel Laureate Joseph Stiglitz, recipient of the 2001 prize, offered a more sympathetic view of higher taxes on the rich as a method to reduce inequality, but stressed the importance of rent-seeking to the rise in inequality in the U.S....

Rent extraction is made possible by asymmetric power. The way to reduce rent-seeking is to level the power. Symmetrical power is an assumption of neoclassical economics as the basis of free markets that are fair.

But markets are not naturally symmetrical because societies are structured on the basis of class and power is distributed asymmetrically as matter of social structure.

The problem in addressing rent this way is that this was a key insight of Marx. So anyone proposing such a solution is bound to be attacked as a 'Marxist," "socialist," or 'communist." Most people capable of making difference don’t' want to go there, at least alone, and no one wants to go first.

Pro-Market
Nobel Laureates: Eliminating Rent Seeking and Tougher Antitrust Enforcement Are Critical to Reducing Inequality

George Akerlof and Robert Shiller — Everything You Need to Know About Free-Market Manipulation

Nobel laureates George A. Akerlof and Robert Shiller are authors of Phishing for Phools: The Economics of Manipulation and Deception, from which this article is excerpted.

Evonomics
Akerlof and Shiller: Everything You Need to Know About Free-Market Manipulation

George Akerlof, Professor of Economics at University of Berkeley, and Robert Shiller, Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices

Robert J. Shiller — Fraud, Fools, and Financial Markets

Adam Smith famously wrote of the “invisible hand,” by which individuals’ pursuit of self-interest in free, competitive markets advances the interest of society as a whole. And Smith was right: Free markets have generated unprecedented prosperity for individuals and societies alike. But, because we can be manipulated or deceived or even just passively tempted, free markets also persuade us to buy things that are good neither for us nor for society.

This observation represents an important codicil to Smith’s vision. And it is one that George Akerlof and I explore in our new book, Phishing for Phools: The Economics of Manipulation and Deception…

Sounds interesting and timely.

Project Syndicate
Fraud, Fools, and Financial Markets
Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices

Diane Coyle — Phoolish economists

On a day of equity market plunges around the world, it seems timely to recommend the new book from George Akerlof and Bob Shiller, Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press have put the introduction online for free.…

The Enlightened Economist
Phoolish economists
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Robert J. Shiller — Parallels to 1937

The depression that followed the 1929 stock-market crash took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. The global situation today is not nearly so dire, but there are parallels, particularly to 1937.

Project Syndicate
Parallels to 1937

Robert J. Shiller | 2013 Nobel laureate in economics, Professor of Economics at Yale University, and the co-creator of the Case-Shiller Index of US house prices

Sam Ro — In 9 Tweets, Marc Andreessen Explains How Bubbles Happen

8/Therefore Efficient Market Hypothesis is correct if for "all information" you substitute "all information, theories, noise, and bullsh*t".

Business Insider
In 9 Tweets, Marc Andreessen Explains How Bubbles Happen
Sam Ro

Joe Weisenthal — Robert Shiller: Forget Bitcoin, Here's The Real Way Technology Can

Shiller has three inter-related ideas, and surprisingly they all spring forth from something that Chile did in the 1960s, when it created a quasi-currency called the UF that was designed to track inflation. If inflation rapidly accelerated, the UF would become more valuable against the Chilean Peso, allowing UF holders to maintain buying power. Goods (like one's rent check) could be priced in UF, so that the price could stay the same all the time, automatically adjusting with inflation.

Shiller proposes three ideas: First he thinks that other countries should adopt digital versions of the UF. He proposes calling them "baskets" reflecting the fact that their value will track a basket of goods. Then he suggests companies like Square and PayPal (at the forefront of digital money) should allow for automatic payments in these baskets, even across boarders, automatically adjusting for different currencies, etc.. And finally he proposes the creation of multiple baskets in each country, so that there could be one that reflects the needs of senior citizens (who buy different stuff than young people) and one that reflects young homeowners and so forth.

Business Insider
Robert Shiller: Forget Bitcoin, Here's The Real Way Technology Can
Joe Weisenthal

I thought Robert Shiller was smart. Boy, was I wrong.

I met Professor Robert Shiller when I worked at Fox several years ago. At the time, I thought he was pretty smart.

Boy was I wrong!!!

Here's the dude's greatest financial idea: He thinks the USA should issue "shares" so that it doesn't have to rely on debt. (Read here).

I'm speechless.

So Shiller thinks the USA has to raise money from investors to be able to pay for the things it needs to provide for its citizens? Seriously? The US needs to raise the very dollars it issues, through an IPO, to fund itself..wha? That's his big innovation? Anyway isn't taking money from its citizens called taxation? Doesn't it already do this?

They gave this guy a Nobel Prize.

Shiller is a freakin' idiot. This is our academic elite. And Forbes Magazine...what can I say? Utter garbage.

Bill Black — Teaching White-Collar Crime

If you never read anything else by Bill Black, please read this and share it widely. It is an excellent summary of Bill's work in documenting control fraud by CEOs as the primary cause of the US financial crisis, and also why nothing has been done about it.

New Economic Perspectives

Teaching White-Collar Crime

William K Black | Associate Professor of Economics and Law at the University of Missouri – Kansas City

Washington's Blog — The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Good summary linking to principal critics like Joe Stiglitz, Jamie Galbraith, George Akerlof, Robert Shiller, and Bill Black.

What is often not mentioned and passed over in silence is that a double standard of justice, one for the privileged and another for "the little people" lowers the moral tone of the society and results in increased disregard for law and authority as being illegitimate. This is destabilizing for society.

Washington's Blog
The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Bizarro economics courtesy of Yale: The "balanced budget stimulus."

This ranks right up there with "contractionary expansion."

Yale professor Robert Shiller, talks about how we can solve our economic problems by raising taxes then spending that revenue.

"In reality, stimulus can easily take a balanced budget form: The government can simply raise taxes and raise expenditures by the same amount."

Ummm...isn't that just redistribution of income? Net change is zero?

Okay, maybe it could work by recycling the savings of the wealthy (presumably, they are the ones who'd be taxed) into greater levels of consumption. But call it what it is...income redistribution.

The problem is, no new net financial assets are created and that's what the non-government is desiring to accumulate right now. It's why interest rates are so low and why demand for Treasuries is so high.

Deficit spending facilitated by higher public debt issuance does the same thing only better. It recycles savings into higher consumption AND creates net new financial assets.