“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

Lars Syll — Newspapers make you stupid: Christopher Lydon interviews Nassim Nicholas Taleb

How the narrative that passes for conventional wisdom gets creates through "the news."

What Taleb doesn't mention is  deep state use of disinformation for propaganda and psy-ops in order to shape a narrative to influence perception (perception is reality) and manage populations by manufacturing consent.

Lars P. Syll’s Blog
Newspapers make you stupid
Lars P. Syll | Professor, Malmo University

Randy Wray — A Meme For Money, Part 2: The Conservative Framing

Next installment in the series on framing MMT is up. Comment here, there, or both.

New Economic Perspectives
A Meme For Money, Part 2: The Conservative Framing
L. Randall Wray | Professor of Economics, UMKC

We need a new meme [frame] for money.

That meme would emphasize the social, not the individual. It would focus on the positive role played by the state not only in the creation and evolution of money, but also in ensuring social control over money. It would explain how money helps to promote a positive relation between citizens and the state, simultaneously promoting shared values such as liberty, democracy, and responsibility.

The conservative view emphasizes individual freedom. What's not to like about that. Opposing it is like opposing mom and apple pie. The challenge is to show that it is insufficient as an ordering principle of society which is what government provides. Conservatives are just as committed to "law and order" as they are to "liberty." In fact, when push come to shove, literally, they prefer law and order. The ongoing undermining of constitutional liberties to "fight terrorism" is a good example of this preference.

As George Lakoff observes some people are uni-conceptual but most are bi-conceptual. Uni-conceptuals have a rigid and doctrinaire conceptual framework that is defined by norms.

Lakoff posits that those who are uni-conceptional define the political extremes of right and left, while those who are bi-conceptual define the moderate center right and center left, as well as voters that self-described as independents.

Uni-conceptual people are unlikely to be converted, but they are not dominant in the voter pool on either right or left. Each side needs to capture the center, the bi-conceptuals.

Bi- (and I would say multi) conceptuals hold values belonging to both extremes, sometimes at once — and they are not always clear on which trumps the other. They can be convinced with the right narrative.

Opposing freedom with some other value is a tough sell without resorting to fear. That is not a good choice. Rather, a more nuanced approach may be more suitable, that is, showing how key values are complementary rather than antagonistic.

Most people are not anarchists. They are very suspect of arguments that reduce government beyond a certain point because they know that the likely result is disorder rather than greater freedom. It is only a small percentage of the population that thinks arming individuals is the way to increase freedom and order simultaneously and automatically.

Similarly, most people are aware that the challenge since the Enlightenment and its political manifestation in the American and then French Revolutions has been to harmonize individual freedom, social justice and fairness, and solidarity in community — Liberté, Egalité, et Fraternité.

It is not a big step from there to create a social and political narrative based on both freedom and order under the rule of law in a liberal democracy as "the American way," as well the mosts successful social and political "experiment" that humanity has conducted on a vast scale. Most modern people already buy into this in one way or another.

The challenge then becomes creating an economic narrative that not only fits this framework but also is capable of delivering on its promise of distributed prosperity through an economic system that is the material life-support system and means of progress of a free people who are safe and secure in an ordered society that is dedicated to the common good and general welfare.

The basis of this narrative is in the preamble to the U. S. Constitution:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence [sic], promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

It is amplified in the conclusion of Abraham Lincoln's Gettysburg Address, where he speaks of "government of the people, by the people and for the people."

Government is about management with a view to public purpose. Management is about efficiency and effectiveness. According to Peter F. Drucker, "efficiency is doing things right, and effectiveness is doing the right things." The commonly understood goal of macroeconomic aspiration is the harmony of growth, employment, and price stability. 

Most economically significant political issues concern these goals and how best to achieve them. MMT has an answer that resolves this trifecta harmoniously, showing that the issue is real resources rather than affordability. That should be the basis of the narrative.

"If we can, why not. If not now, when?"

George Lakoff — Why It's Hard to Replace the 'Fiscal Cliff' Metaphor

Apropos Randy's lastest on framing. George Lakoff explains neural circuitry.

Writers on economics have been talking since the election about why the "fiscal cliff" metaphor is misleading. Alternative metaphors have been offered like the fiscal hill, fiscal curb, and fiscal showdown, as if one metaphor could easily be replaced by another that makes more sense of the real situation. But none of the alternatives has stuck, nor has the fiscal cliff metaphor been abandoned. Why? Why do some metaphors have far more staying power than others, even when they give a misleading picture of a crucial national issue?

The Huffington Post
Why It's Hard to Replace the 'Fiscal Cliff' Metaphor
George Lakoff | Goldman Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley

Tell President Obama, No More Tim Geithners!

The narrative behind it? Tell Obama we want:

1) an adequate income for every US citizen,

2) a productive role for every available resident, and

3) taxes low enough to allow quality and innovation expressed in distributed decision-making to continuously increase.

[Note, that narrative contains no mention whatsoever of "balanced fiat" or of solvent banks - both of which are trivially incidental details that would always come out in the wash.]

Another incidental bit of trivia? No More Tim Geithners!
Need we add that Mo, Larry & Curley needn't be elected to Congress? Ok, three we could live with, but 500+? A little help here, please.

Trumped up comedy routine: "Take my Congressperson .... please!

 (I'll throw in our Treasury Secretary - if you act fast.)"

TEDx Video: If You Want Them To Remember, Tell A Story

Read it and link to video at Climate Progress
Must-See TEDx Video: If You Want Them To Remember, Tell A Story
by Tom Smerling
(h/t paul in the comments)

Good advice for presenting MMT.

Jonah Lehrer — Is the world just?

...Why do we ignore [things like] prisoner abuse? After all, we are usually empathetic creatures, sensitive to the suffering of others. Why does this suffering leave us cold?

Part of the answer is rooted in a human bias. It turns out that we all have an intuitive belief in justice – people get what they deserve. This instinct makes all sorts of social contracts possible, but it comes with a perverse side effect, causing us to ignore stories of suffering that directly contradict that assumption. Because we believe in justice, we ignore stories of injustice.

This is known as the Just World Hypothesis and it was first developed by the social psychologist Melvin Lerner. One of the classic demonstrations of the effect took place in 1965: Several volunteers are told that they are about to watch, on closed circuit television, another volunteer engage in a simple test of learning. They see the unlucky subject – she is actually a graduate student, working for Lerner – being led into the room. Electrodes are attached to her body and head. She looks a little frightened.

Now the test begins. Whenever the subject gives an incorrect answer, she is given a powerful jolt of electricity. The witnesses watching on television see her writhe in pain and hear her scream. They think she is being tortured....

Read the whole post at Wired: The Frontal Cortex, Is the world just? (h/t Edward Harrison)

This post by Lehrer shows about narrative shapes meaning and perspective, and therefore influences the apprehension and description of reality. This is not a new discovery, and it is not applicable only to matters like justice.

A lot of economics is based on a narrative that is widely accepted even though many of its assumptions have been falsified empirically, or are not even stated as testable hypotheses. This is an indication that a great of what passes for science is simply ideology.

This explains a lot of the misunderstanding of monetary economics and the resistance to MMT. MMT runs against prevailing narratives embedded in the contemporary economic universe of discourse that have filtered from academia to the media, public, and policy makers.

This is particularly troubling at this point, since the prevailing narrative just broke down big time when mainstream economists were not only unable to foresee the onset of the global financial crisis until in broke, but also they were unable to account for it afterward. But the narrative still stands, since it is so deeply embedded.

One of the powerful and growing narratives is based on the norm that all indebtedness is "bad," and that government deficit expenditure involves increasing public debt, which is exponentially bad since it is passed on to future generations.

There is also a narrative emerging shared by both left and right that "debt-based" money is one of the chief underlying problems. This is at the basis for some people calling for abolition of the Fed.

These narratives are gaining strength and breadth, and this phenomenon — I would call it a fad at this point — is creating obstacles in the way of understanding and acceptance of MMT. That's not only an economic problem; it is a social and political problem as well. For as long as the understanding eludes the public, media and policy makers, more financial crises are in store.