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Robert Shiller Discusses Narrative Economics · Masters in Business

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  Speaker 1: This is Master's in Business with Barry Riddholts on Bloomberg Radio.
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  Speaker 1: This week on the podcast, I have an extra special guest.
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  Speaker 1: What can I say? Robert Schiller is a legend professor
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  Speaker 1: at Yale, Nobel laureate, author of ten books, one of
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  Speaker 1: the people who helped drive behavioral economics to its position
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  Speaker 1: of influence today. His new book Narrative Economics tells the
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  Speaker 1: fascinating story of how stories drive markets and economies, and
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  Speaker 1: why some stories go viral and others don't. It's quite fascinating.
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  Speaker 1: I could babble for all this time about how fascinating
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  Speaker 1: it was to chat with him, But rather than me
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  Speaker 1: do that, let me just say, with no further ado,
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  Speaker 1: my conversation with Professor Robert Schiller. This is Master's in
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  Speaker 1: Business with Barry Ridholts on Bloomberg Radio. My extra special
• 0:57
  Speaker 1: guest this week is Robert Schiller. He is a professor
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  Speaker 1: of economics at Yale University. He won the Nobel Prize
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  Speaker 1: for his empirical analysis of asset prices in He is
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  Speaker 1: perhaps best known for the cyclically adjusted pe ratio, the
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  Speaker 1: Case Shiller Housing Index, all sorts of works in behavioral
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  Speaker 1: economics as well as the author of numerous books, most
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  Speaker 1: recently Narrative Economics, How stories go viral and drive major
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  Speaker 1: economic events. Bob Schiller, Welcome to Bloomberg. Very it's a pleasure.
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  Speaker 1: So it's funny that you, of all people, wrote this
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  Speaker 1: book when when I think of narratives in the context
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  Speaker 1: of behavioral economics, I tend to think of the stories
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  Speaker 1: that investors tell themselves to either rationalize buying a company
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  Speaker 1: or not selling something that didn't work out. And you
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  Speaker 1: seem to have taken this to a different direct. Your
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  Speaker 1: thesis is narratives has a very big impact on markets
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  Speaker 1: and the economy. Is that different from your prior work
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  Speaker 1: or is this consistent? I wrote a book in two
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  Speaker 1: thousand called Irrational Exuberance, which focused on well, I didn't
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  Speaker 1: use the word narrative a lot, but it was the
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  Speaker 1: effect of narratives on the stock market. I've decided it's
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  Speaker 1: bigger than that. It extends to the whole economy, and
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  Speaker 1: a lot of people know about the importance of narratives,
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  Speaker 1: but economists mostly don't. So it's it's trying to bring
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  Speaker 1: the study of narratives into economics because I think it
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  Speaker 1: matters for the big events that we we see And
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  Speaker 1: in the book you describe how other fields use narratives
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  Speaker 1: pretty robustly as a way of either explaining what happened
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  Speaker 1: or why something happened. Why why has economics been so
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  Speaker 1: behind the times with this, Well, I don't exactly know
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  Speaker 1: why it is so different. It has something to do
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  Speaker 1: with a a spree decor and a department of economics
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  Speaker 1: and finance that is built around this maximizing framework that
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  Speaker 1: that people we don't describe their behavior, we describe their
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  Speaker 1: objectives and assume that they're maximizing. They're expected success with
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  Speaker 1: these objectives. And there's a reason for that in economics
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  Speaker 1: that often people know something that we uh that that
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  Speaker 1: is guiding their actions, and we better figure out what
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  Speaker 1: that is. And so I think there's that is an
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  Speaker 1: interesting direction that economics has taken. And uh it leads
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  Speaker 1: us to things like the optimality of market solutions. UH.
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  Speaker 1: And so it's become it's great, but it's also become
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  Speaker 1: something of a religion. UH. And it has blocked people
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  Speaker 1: seeing the obvious. So homo economists people being profit maximizers.
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  Speaker 1: I assume you're not really a big believer that that
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  Speaker 1: is the dominant narrative all the time. It's not the
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  Speaker 1: dominant narrative all the time. And human mind is very capricious,
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  Speaker 1: and it jumps from narrative to narrative, and it's socially determined.
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  Speaker 1: It's not just narratives I tell myself. It's important that
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  Speaker 1: I tell them to others and they can spread virally.
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  Speaker 1: So that leads to the question about social media. How
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  Speaker 1: important is the modern era of fill in the blank, Facebook, Twitter, Instagram,
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  Speaker 1: whatever to economic and market stories going viral? Well, it
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  Speaker 1: changes this the scenario, but we did have stories going
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  Speaker 1: viral thousands of years ago through word of mouth, the
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  Speaker 1: same way viruses go viral from person to person with
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  Speaker 1: no intermediary. That's how you catch a disease. Usually you
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  Speaker 1: meet someone and it spreads from one person to another.
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  Speaker 1: So it's capable of producing big epidemics. Now it might
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  Speaker 1: beat them up. It also allows more polarity. It allows
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  Speaker 1: people to find similarly oriented people and so you might
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  Speaker 1: see more diversity and views that come about because of
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  Speaker 1: So I think we have to study the effect of
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  Speaker 1: social media and other internet programs. But fundamentally, narratives have
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  Speaker 1: been important in driving the economy. Going back Middllennia. All right,
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  Speaker 1: so let's talk about some big events, and I want
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  Speaker 1: to get your feedback as to how various memes impacted them.
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  Speaker 1: There seem to have been a number of narratives around
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  Speaker 1: the Great Recession and the credit crisis. The one that
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  Speaker 1: I remember distinctly home prices never go down. It turned
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  Speaker 1: out not to be the case. How important were narrative
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  Speaker 1: economics to the build up to the crisis as well
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  Speaker 1: as the subsequent collapse. I think home prices that was
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  Speaker 1: a major cause of the crisis, but we might have
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  Speaker 1: still had a recession, but it wouldn't have been so
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  Speaker 1: bad without that. I want to know what I'm interested
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  Speaker 1: in the big events, and often it's contributing factors that
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  Speaker 1: make them big. So the idea that homes are a
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  Speaker 1: great investment, it wasn't so much that people were saying
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  Speaker 1: home prices never go down. It's that they didn't pay
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  Speaker 1: any attention to the thought that they might go down.
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  Speaker 1: I remember I was on stage and in a event
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  Speaker 1: around two thousand five, two thousand six, and I asked
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  Speaker 1: a businessman who was on the panel with me, what
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  Speaker 1: if home piss go down in front of an audience
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  Speaker 1: and He seemed perplexed. But what are you talking about.
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  Speaker 1: It's not like he was just saying that they never
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  Speaker 1: go down. But he said they have. They've never gone down,
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  Speaker 1: not since of the Great Depression. And I said, well,
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  Speaker 1: what if that happens again? And he was kind of
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  Speaker 1: making me look crazy. He couldn't even conceive of the
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  Speaker 1: idea that prices might fall. Well, when you haven't seen
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  Speaker 1: them fall substantially since the Great Depression, maybe that's forgivable.
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  Speaker 1: It didn't. We see a decrease in prices late late
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  Speaker 1: eighties after the eighties seven crash, and rates had gone up.
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  Speaker 1: So it's not like it's two generations ago. It was
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  Speaker 1: thirty years ago. If you're a fifty something, you're a
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  Speaker 1: business person, that should be in Europe. But it's not
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  Speaker 1: in the narrative. It's not being talked about. We can
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  Speaker 1: forget things like, for example, the stock market crash of seven.
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  Speaker 1: That's a little over thirty years ago. But my students
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  Speaker 1: don't know anything but never heard of it. What about
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  Speaker 1: the dot com crash or the O eight oh nine collapse.
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  Speaker 1: It's got to be a little fresh now. Yeah, well,
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  Speaker 1: the dot com crash was in the future, in the
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  Speaker 1: event that I'm describing. But people know about things that
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  Speaker 1: are that are popular, and the crash is the one
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  Speaker 1: that everyone remembers. Other ones more recently, how about the
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  Speaker 1: six crash or yeah, well it was like one day
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  Speaker 1: there was a six percent drop. Nobody remembers. I mean
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  Speaker 1: maybe you remember. I don't remember that. That's before my time.
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  Speaker 1: So let's talk about another big event. Let's let's talk
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  Speaker 1: about the gold standard. The US for a long time
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  Speaker 1: was on the gold standard, then we were off. President
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  Speaker 1: Trump has talked about going back to the gold standard.
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  Speaker 1: This seems to rise and fall over time. What what
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  Speaker 1: drives that? Well? I think that what drives narratives is
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  Speaker 1: a certain creativity that some people have at some moments
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  Speaker 1: in their lives to invent a story. Uh. And this
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  Speaker 1: is something that literature department studied economists don't What is it?
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  Speaker 1: What is it about a story that works? Uh? You know,
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  Speaker 1: often are I think our attention to ideas is focused
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  Speaker 1: by the kind of stories that accompany them. Um So
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  Speaker 1: I thought, for example, and it it there's something about
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  Speaker 1: visual impact, imagery, something about human interest, something about emotions
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  Speaker 1: being driven up, uh, something about tie into other stories
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  Speaker 1: that you already liked uh that the creative art of
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  Speaker 1: a writer can sometimes surmount and and use and create
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  Speaker 1: a narrative that will really go viral. It's a difficult
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  Speaker 1: thing to do. It's it's similar with music. Some music
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  Speaker 1: goes viral and some doesn't. I think it's it's somewhat random.
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  Speaker 1: Something gets started and it becomes developed certain associations, and
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  Speaker 1: then everyone is talking about It has to be right time,
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  Speaker 1: right place, and just a little bit of luck, uh,
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  Speaker 1: and maybe requires perfection. So the most the most famous
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  Speaker 1: listen in the arts, where it's not exactly is sort
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  Speaker 1: of there. The ballet the Nutcracker. That's the most famous
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  Speaker 1: ballet in the entire world. It's it's everywhere. But when
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  Speaker 1: Tchaikovsky first wrote it in it wasn't a big success.
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  Speaker 1: He had to work at it, uh. And then um,
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  Speaker 1: it came over to the US and George Ballantine, the
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  Speaker 1: ballet writer, the ballet director, fixed it, made it into
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  Speaker 1: a really beautiful ballet, and so it has now gone
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  Speaker 1: viral and it's we love this ballet. People who don't
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  Speaker 1: like ballet will go to that one and repeatedly. So
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  Speaker 1: so there was something about it that that Tchaikovsky had
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  Speaker 1: an idea. He couldn't quite get it at first, and
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  Speaker 1: it involved little details that make it somehow work eventually
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  Speaker 1: be bringing the children. You have to emphasize the children,
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  Speaker 1: and people love to see children blossoming on stage in
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  Speaker 1: front of them. So because it's a Christmas themes and
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  Speaker 1: it's also ties into anything else, and that there's an
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  Speaker 1: annual prompt to do it, to see it again, so
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  Speaker 1: a lot of people go every Christmas. Now this isn't
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  Speaker 1: really an economic narrative. I'm doing a little bit different,
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  Speaker 1: but it's the same idea that there that the and
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  Speaker 1: what's so special about that story or any other story?
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  Speaker 1: Something clicked in and it's just universal. Sorry, by the way,
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  Speaker 1: have you seen the nutcra I recommend you go see
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  Speaker 1: it if you haven't. Them. The story you're telling about
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  Speaker 1: how that when viral reminds me a little bit of
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  Speaker 1: Derrick Thompson writes for The Atlantic and wrote a book
• 11:29
  Speaker 1: How HiT's Happened, and he talks about a number of paintings,
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  Speaker 1: including all of the Impressionists. It's really a sort of
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  Speaker 1: fascinating coincidence how a certain group of Impressionists became worldwide
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  Speaker 1: famous because one of them were collecting other Impressionists work,
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  Speaker 1: left it in their estate to the French Um, one
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  Speaker 1: of the French museums, and part of the will was
• 11:53
  Speaker 1: it how to be displayed. So suddenly just a group
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  Speaker 1: of a new style of art that wasn't popular anywhere else,
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  Speaker 1: and a group of seven or eight artists became worldwide famous.
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  Speaker 1: Same sort of thing, very serendipitous, very random. This reminds
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  Speaker 1: me of a book that influenced me a lot years ago.
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  Speaker 1: It's called The Painted Word by Thomas Wolfe. It's a
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  Speaker 1: similar theme. He claims that a lot of modern art
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  Speaker 1: is not the quality of it isn't recognizable just by
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  Speaker 1: looking at it. You have to read the reviewers, the critics,
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  Speaker 1: and they will tell weave it into a story. Then
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  Speaker 1: when you go back and look at it, you love
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  Speaker 1: this painting. The story wouldn't have known. Quite interesting. Let's
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  Speaker 1: talk a little bit about the world of economics and
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  Speaker 1: some of the things that either do or don't go viral.
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  Speaker 1: In the book, you write about the Laugher curve, which
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  Speaker 1: I've always thought of as having an element of truth,
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  Speaker 1: that there has to be some optimal tax rate that
• 12:53
  Speaker 1: maximizes revenues. But the way it seems to have been applied.
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  Speaker 1: Is let's just call it contraindicate did It was a
• 13:01
  Speaker 1: disaster in Kansas. It had terrible effects. So so why
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  Speaker 1: did the Laugher curve go viral? And why are people
• 13:11
  Speaker 1: so willing to overlook some of the downsides of it? Well,
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  Speaker 1: I have only a partial understanding why it went viral.
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  Speaker 1: I compare it with the Rubik's cube, which went viral
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  Speaker 1: at the same time in the book during Reagan sterm Right,
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  Speaker 1: and so why did Rubik's cube go viral? It's just
• 13:27
  Speaker 1: a puzzle, right, and it was it was the right
• 13:30
  Speaker 1: story was told about it. Huh, and that was thought
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  Speaker 1: to be um, somehow deep and important. An obscure mathematician
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  Speaker 1: had created this uh engineer, right, and that's a narrative,
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  Speaker 1: just those two words Hungarian engineer at the time when
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  Speaker 1: we were still had Eastern blocked countries behind the iron curtain. Right,
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  Speaker 1: so all these things, Uh, it may not work again today.
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  Speaker 1: Hungary has a different story about it now. But I
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  Speaker 1: mean the laughter curve also, there's a little story associated
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  Speaker 1: with it. It's the story of art Laugher and economist
• 14:09
  Speaker 1: at dinner at the Two Continents restaurant in Washington fancy restaurant,
• 14:16
  Speaker 1: and he drew on a napkin a diagram illustrating his theory.
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  Speaker 1: Everyone remembers this napkin. I wonder that's just an irrelevant detail.
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  Speaker 1: But but but somehow it presents the theory is something
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  Speaker 1: that ought to be obvious. It's also this sort of
• 14:33
  Speaker 1: virgin birth that he whips out a pan and starts
• 14:36
  Speaker 1: doodling and says, here's where we optimize tax revenues. That
• 14:40
  Speaker 1: makes what otherwise would be a fairly dry thesis very
• 14:45
  Speaker 1: compelling and very visual. Yeah, it's it's almost like a joke.
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  Speaker 1: I mean, it has a punchline that that diagram is
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  Speaker 1: the punchline, because it says that there's always two tax
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  Speaker 1: rates to reach any revenue, and one of them dominates
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  Speaker 1: the other. And it's kind of something you can explained
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  Speaker 1: fairly quickly. Uh. And it's pungy. Yeah, it definitely is.
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  Speaker 1: So that kind of raises a question in general about
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  Speaker 1: narratives and the economy, which which came first, specifically our
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  Speaker 1: stories driving the economy or is the state of the
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  Speaker 1: economy driving the narratives people used to explain it. Well,
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  Speaker 1: I'm not an extremist on the answer to that economists
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  Speaker 1: are an extremist ec I must say it goes only
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  Speaker 1: one way from the economy to the story. So we
• 15:33
  Speaker 1: can just forget that. We don't care about the story.
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  Speaker 1: That's just trivia. You look at causation a little different.
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  Speaker 1: I think it goes both ways, and so uh. It
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  Speaker 1: also interacts with another kind of feedback, which is the
• 15:47
  Speaker 1: multiple rounds of expenditure. If you mean, if the government
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  Speaker 1: spends money, that becomes somebody's income, and that person spends
• 15:55
  Speaker 1: some of that and that becomes someone else's income. This
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  Speaker 1: economy have loved this ever since John Maynard Keynes in
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  Speaker 1: the thirties. But that that isn't the only kind of
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  Speaker 1: feedback that's occurring. The other kind of feedback is verbal
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  Speaker 1: from person to person spreading a story. And I think
• 16:13
  Speaker 1: these two feedbacks interact. This is something for further research someday,
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  Speaker 1: but I mean, qualitatively, I can say what's happening. The
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  Speaker 1: the great recession that we just went through ten years
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  Speaker 1: ago was partly the result of the standard Keynesian multiplier,
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  Speaker 1: but it was also just people telling stories. It resurrected
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  Speaker 1: the story of the Great Depression, and you can see
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  Speaker 1: that in Google trends or other other ways of I
• 16:42
  Speaker 1: do with various kinds of searches. There was a huge
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  Speaker 1: impact of the Great Depression stock market crash that suddenly
• 16:53
  Speaker 1: became vivid like this is happening again. Well, that's interesting
• 16:56
  Speaker 1: because during the let's call it two to oh seven
• 17:02
  Speaker 1: early oh eight period, it seemed that a lot of
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  Speaker 1: the stories were, hey, you can make a ton of
• 17:07
  Speaker 1: money just buying houses and flipping it, and people's greed
• 17:11
  Speaker 1: monster got stirred up. Hey my neighbors making all this
• 17:14
  Speaker 1: money buying and selling houses. I can also how much
• 17:17
  Speaker 1: of that is also narrative um viral e going from
• 17:21
  Speaker 1: one person to the next. Actually, the term flipping houses
• 17:25
  Speaker 1: began to appear near the end of the moon. It
• 17:29
  Speaker 1: was often used pejoratively it was crazy that this is
• 17:33
  Speaker 1: getting crazy, And it started to appear around two thousand five,
• 17:37
  Speaker 1: a couple of years or three years before the recession
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  Speaker 1: really hit. Do you recall when some of the shows
• 17:44
  Speaker 1: started showing up on HDTV and those channels flipped this
• 17:48
  Speaker 1: house and it was a run of buy a house,
• 17:52
  Speaker 1: fixed up cell at television shows. I think the first
• 17:55
  Speaker 1: one was Property Louder in the UK, and then that
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  Speaker 1: was such a success will show it's it displayed flippers.
• 18:03
  Speaker 1: I don't know if it called them flippers, but it
• 18:05
  Speaker 1: displayed people who bought a house, fixed it up a
• 18:07
  Speaker 1: little bit, used their interior decorating instincts, and then made
• 18:12
  Speaker 1: a lot of money fast. That was a powerful narrative because,
• 18:17
  Speaker 1: first of all, it feeds your ego. A lot of
• 18:19
  Speaker 1: people are decorating their own home and they think they're
• 18:23
  Speaker 1: pretty good. Aht it. Even Donald Trump thinks he's pretty
• 18:26
  Speaker 1: good decorating hotels. Um, So that's what that's the source
• 18:33
  Speaker 1: of ego gratification. And justifiably, some of these people are talented.
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  Speaker 1: So but that doesn't mean that it's their talent that's
• 18:41
  Speaker 1: creating the profits. It's the housing bubble that's creating the profits.
• 18:45
  Speaker 1: And people find it difficult to think logically and rationally
• 18:49
  Speaker 1: about did I have this success because I'm smart art?
• 18:52
  Speaker 1: Was it just chance? Just just a little bit of Look,
• 18:55
  Speaker 1: let's let's discuss fake news. In the book you wrote
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  Speaker 1: quote the brain over time forgets that it once deemed
• 19:04
  Speaker 1: stories unreliable. Explain what that means. Uh? Yeah, the way
• 19:10
  Speaker 1: the brain you you remember stories that you heard in
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  Speaker 1: the past as a story, and you don't always have
• 19:18
  Speaker 1: well tied to that story in the linkages in your brain.
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  Speaker 1: What is the source of this story and is it
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  Speaker 1: a reliable source? So the source connection is somewhat weak.
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  Speaker 1: You have to remember where you heard the story if
• 19:32
  Speaker 1: you're if you're gonna be telling the truth all the time,
• 19:35
  Speaker 1: and we try to do that, but I think there's
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  Speaker 1: a human defect. So you just don't remember where you
• 19:40
  Speaker 1: heard a story, but you're in casual conversation with somebody,
• 19:43
  Speaker 1: what difference does it make? You know, I might be
• 19:45
  Speaker 1: telling a story that's not right, but it's a good story,
• 19:49
  Speaker 1: and I'm not you know, I'm not saying this in
• 19:51
  Speaker 1: bad faith. I'm not trying to deceive anyone. Nobody really
• 19:55
  Speaker 1: knows what the actual truth is. So all kinds of
• 19:58
  Speaker 1: untruthful stories bread, viral, e and it isn't anyone's ill
• 20:02
  Speaker 1: will that that accomplishes that. You You also explain in
• 20:06
  Speaker 1: the book that quote truth is not enough to stop
• 20:09
  Speaker 1: false narratives. So that raises two questions. First is why not?
• 20:15
  Speaker 1: And second, if truth doesn't stop a false narrative, what
• 20:19
  Speaker 1: does well? It does often stop false narratives, So I
• 20:23
  Speaker 1: don't it's not all together, but The problem with theories
• 20:29
  Speaker 1: are narratives that counter a false narrative is that they
• 20:34
  Speaker 1: might not be contagious. It's just not fun, not as compelling.
• 20:38
  Speaker 1: So we people can like to entertain each other in conversations.
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  Speaker 1: So if if I told you dramatically that something you
• 20:46
  Speaker 1: believe was wrong, you might find that entertaining. But typically,
• 20:50
  Speaker 1: you know, you heard some stories somewhere and it's may
• 20:54
  Speaker 1: or may not be true. But uh, I'm not fascinated
• 20:58
  Speaker 1: by the story that it was wrong. It just kind
• 21:00
  Speaker 1: of It all depends on the exact nature of the story.
• 21:05
  Speaker 1: It can easily be that I don't you know, I
• 21:07
  Speaker 1: didn't really care to hear this correction. I had a
• 21:10
  Speaker 1: nice story that I was telling everyone, and you're telling
• 21:13
  Speaker 1: me now that it was wrong. Okay, maybe so a
• 21:16
  Speaker 1: little cognitive dissonance kicks in, but the entertainment value is so.
• 21:20
  Speaker 1: In the book, you tell the story about a British
• 21:23
  Speaker 1: pop singer named Lily Allen, Uh supposedly did a gig
• 21:27
  Speaker 1: in oh nine and turned down the opportunity to be
• 21:30
  Speaker 1: paid in bitcoin, And if you would have taken that
• 21:33
  Speaker 1: and then held onto the bitcoin, she'd be a billionaire.
• 21:36
  Speaker 1: So first compelling story second, was it true? Yeah? This,
• 21:42
  Speaker 1: uh may or may not be true. Who cares, right,
• 21:45
  Speaker 1: it's a nice story. I never verified whether it was true.
• 21:48
  Speaker 1: I mentioned it in the book. But it relates to
• 21:51
  Speaker 1: a basic human emotion called fomo fear of missing out,
• 21:55
  Speaker 1: and that that is a driving for us. So you
• 21:57
  Speaker 1: you also want to take investing tips quickly before you
• 22:03
  Speaker 1: you know, have ruminated on them for a month, so
• 22:06
  Speaker 1: you have to act quickly, so you fear of missing
• 22:10
  Speaker 1: out is an important instinct that and maybe it goes
• 22:14
  Speaker 1: back to our caveman days when you had the rush
• 22:17
  Speaker 1: to grab the food before some other caveman guys. It
• 22:19
  Speaker 1: was a matter of survival, not just making a profit
• 22:22
  Speaker 1: in the market. Quite quite fascinating. So let's talk a
• 22:25
  Speaker 1: little bit about markets. And if we're talking about markets,
• 22:29
  Speaker 1: we have to talk about bubbles. If I had to guess,
• 22:33
  Speaker 1: the viral nature of bubbles and the stories surrounding them
• 22:37
  Speaker 1: had to be a key driver in your desire to
• 22:40
  Speaker 1: write this book. Bubbles are perhaps what you're best known for. Um.
• 22:47
  Speaker 1: Your work in bubbles and behavioral economics very much student
• 22:51
  Speaker 1: contrast to the traditional economic thinking that markets are efficient
• 22:55
  Speaker 1: and people are rational. Um, how much did bubbles have
• 22:59
  Speaker 1: to do with the ideas behind this book. I think
• 23:02
  Speaker 1: that bubbles was a kind of the story that markets
• 23:05
  Speaker 1: are efficient is a half truth that has been mentioned
• 23:10
  Speaker 1: going back hundred and fifty years, but it never really
• 23:16
  Speaker 1: became dominant until Eugene Fama wrote his famous article in
• 23:21
  Speaker 1: the late nineteen when was nineteen sixties. I think and
• 23:25
  Speaker 1: you and Farma both shared the Nobile process. Yeah, that
• 23:29
  Speaker 1: was ironic. It was an interesting experience during Nobel a
• 23:32
  Speaker 1: week when I had to spend a week with Eugene Fama,
• 23:35
  Speaker 1: who who was still on the view that I was
• 23:37
  Speaker 1: totally wrong, But it was kind of It was kind
• 23:41
  Speaker 1: of nice because it turns out that we didn't really
• 23:43
  Speaker 1: disagree much U much that was factual. We agreed on
• 23:47
  Speaker 1: the fact It's like it's a different narrative. So I
• 23:50
  Speaker 1: like to describe people as swayed by narratives, and he
• 23:55
  Speaker 1: thinks of it as um, what is it? It's changing tastes,
• 23:59
  Speaker 1: maybe are changing risk aversion that people are different than
• 24:03
  Speaker 1: He's trying to incorporate these things into a theory. He
• 24:06
  Speaker 1: has a company called Dimensional Fund Advisors. He he works
• 24:10
  Speaker 1: for d f A. Yes, but he was the inspiration
• 24:13
  Speaker 1: I think David Booth is the founder of that. Yes,
• 24:16
  Speaker 1: he's been with them for what forty years something like that.
• 24:19
  Speaker 1: So I I was congratulating him during Nobel week for
• 24:24
  Speaker 1: showing decisively how he can beat the market through d
• 24:27
  Speaker 1: f A, and he didn't like that. That's not the
• 24:29
  Speaker 1: way he wants to put it. So I stopped doing it.
• 24:31
  Speaker 1: I was I think it was becoming unwelcome, even though
• 24:34
  Speaker 1: I was congratulating him. He doesn't think that he's telling
• 24:38
  Speaker 1: people how to beat the market. He's helping people to
• 24:40
  Speaker 1: manage their risks. What I find fascinating that you and
• 24:45
  Speaker 1: Fama won the Nobel the same year is that there's
• 24:48
  Speaker 1: if you draw the Venn diagrams of your separate narratives,
• 24:52
  Speaker 1: there's a big overlap in the middle. The overlap is
• 24:56
  Speaker 1: essentially markets are kind of sort of efficient, and it's
• 25:00
  Speaker 1: very hard to beat them. He he will admit that
• 25:02
  Speaker 1: it's very hard to beat that. Your narrative also adds
• 25:07
  Speaker 1: and people are irrational, and sometimes that leads to markets
• 25:10
  Speaker 1: going wildly out of off kilter before they return back
• 25:15
  Speaker 1: to normal normality. I don't think Farma is a big
• 25:19
  Speaker 1: believer that bubbles can be either identified or even defined.
• 25:24
  Speaker 1: It's just markets reaching extremes. That's one thing he said
• 25:29
  Speaker 1: during Nobel Week that I challenge you to say when
• 25:32
  Speaker 1: it was that someone could identify a major turning point
• 25:36
  Speaker 1: in the market. But I agree with that. It's hard.
• 25:39
  Speaker 1: It's hard to pin down when the turning point is
• 25:42
  Speaker 1: going to come. Uh. So, uh, maybe maybe we're not that.
• 25:49
  Speaker 1: By the way, I admire the man. He's brilliant. He's
• 25:52
  Speaker 1: done some tremendous work. Let's talk about one other narrative
• 25:57
  Speaker 1: that has gone viral. What do you make of negative
• 26:01
  Speaker 1: interest rates essentially exported here first from Japan and now Europe?
• 26:07
  Speaker 1: How do these happen? Are we gonna see these in
• 26:09
  Speaker 1: the United States? I recall, Uh, you had said a
• 26:13
  Speaker 1: long time ago, Well, negative rates can never happen. It violates, uh,
• 26:18
  Speaker 1: the basic laws of economics. Uh. Yeah, I used to
• 26:21
  Speaker 1: teach that an hour out of minus a half percent
• 26:26
  Speaker 1: in in the e EU. So that's but it never
• 26:30
  Speaker 1: It can't get down to minus five percent. It can't
• 26:33
  Speaker 1: because you would hold cash instead. And it just reflects
• 26:37
  Speaker 1: the difficulties of actually storying cash. Uh, and especially when
• 26:42
  Speaker 1: there's so many trillions of dollars of it slashing around
• 26:45
  Speaker 1: the system, right. So it's an interesting observation that now,
• 26:50
  Speaker 1: I wonder, do you know this where they're negative interest
• 26:53
  Speaker 1: rates fifty or a hundred years ago? They probably were
• 26:57
  Speaker 1: at some point. I don't recall ever reading about negative
• 26:59
  Speaker 1: and just rates before the nine Japan situation. Um, but
• 27:05
  Speaker 1: I have to imagine that at one point in time
• 27:08
  Speaker 1: it must have been, right. It's just it's just not
• 27:10
  Speaker 1: part of our narrative in the econ department. So it
• 27:13
  Speaker 1: must be that somebody in the nineteenth century had a
• 27:17
  Speaker 1: million dollars in cash and he wanted to store it somewhere,
• 27:20
  Speaker 1: and uh, someone said, well, I'm gonna charge you. I
• 27:22
  Speaker 1: don't you know, if you think about the gold standard,
• 27:25
  Speaker 1: that's effectively the equivalent of negative interest rates because you
• 27:29
  Speaker 1: have to pay for storage and security for gold bars.
• 27:33
  Speaker 1: How is that any different than negative interest rates for
• 27:35
  Speaker 1: bonds if they're effectively the same credit risk. So we
• 27:39
  Speaker 1: used to talk to our students about the zero lower
• 27:42
  Speaker 1: bound just because it's kind of cool, just like the
• 27:45
  Speaker 1: gold standard was kind of So I talked about the
• 27:47
  Speaker 1: gold standard in my book that the probably didn't really
• 27:50
  Speaker 1: talk about the gold standard. They were just on it, right. Uh,
• 27:54
  Speaker 1: it was a given, but then it became a moral
• 27:57
  Speaker 1: value in the particularly when there was talk of bimetalism,
• 28:02
  Speaker 1: bimetalism meaning oh that, uh yeah. I compare it with bitcoin,
• 28:09
  Speaker 1: because I think the emotional content of the narrative was
• 28:12
  Speaker 1: very similar to bitcoin. It was a new financial innovation
• 28:16
  Speaker 1: started to be talked about on the eighteen seventies. Let's
• 28:19
  Speaker 1: go off the gold standards, have two standards, and it's
• 28:22
  Speaker 1: gonna it's gonna stimulate the economy. That was a time
• 28:25
  Speaker 1: when they were partly right because it would expand the
• 28:28
  Speaker 1: money supply and that would cause inflation, and that would
• 28:32
  Speaker 1: wipe out the real value of debts. It would help
• 28:35
  Speaker 1: farmers who were oppressed by deflation. So it has some element.
• 28:40
  Speaker 1: But the point is it sounds like bitcoin. It was
• 28:44
  Speaker 1: a shocker that someone would have it would go off
• 28:47
  Speaker 1: the gold standard. Everything has been predicated on gold as
• 28:52
  Speaker 1: the real thing, and you want to put some cheaper metal,
• 28:55
  Speaker 1: you're debasing the currency. That's a crime. You got very emotional,
• 29:00
  Speaker 1: and it got an emotional in ways that were regional
• 29:04
  Speaker 1: that East Coast intellectuals tended to be in favor of
• 29:08
  Speaker 1: keeping the gold standard, and people out west, who maybe
• 29:12
  Speaker 1: had less college most of them didn't have college at all.
• 29:16
  Speaker 1: They were thinking they were pretty smart to have discovered
• 29:19
  Speaker 1: this new bimetalism. Was it William Jennings Bryant who said
• 29:23
  Speaker 1: we we don't need to be hung on a cross
• 29:25
  Speaker 1: of gold. I know I'm mangling that somewhat. Yeah, that's
• 29:28
  Speaker 1: in my book too. Turns out he did during the
• 29:32
  Speaker 1: eighteen nine Democratic Convention. William Jennings Bryan said you shall
• 29:38
  Speaker 1: not crucify us on a cross of gold. But it
• 29:41
  Speaker 1: turns out, and that's that it's so famous a quote
• 29:45
  Speaker 1: that people still remember it today. Uh. The crowd went
• 29:50
  Speaker 1: wild there. They thought it was the second Coming of
• 29:52
  Speaker 1: Christ or something like that. Uh. It turns out that
• 29:56
  Speaker 1: William Jennings Bryan was quoting somebody else. He didn't say so.
• 30:02
  Speaker 1: The other guy who said it was a congressman who
• 30:04
  Speaker 1: just said it from some speech, didn't get noticed. It
• 30:07
  Speaker 1: was it was that moment he was giving his acceptance
• 30:11
  Speaker 1: of the Democratic nomination for the presidency at the convention,
• 30:15
  Speaker 1: and there were newspaper reporters there. Uh, and the crowd
• 30:19
  Speaker 1: went wild. Uh. And it just became a narrative that
• 30:23
  Speaker 1: never got forgotten. Although we've forgotten that, we've forgotten bi
• 30:27
  Speaker 1: metalism pretty much. We still remember that quote. We don't
• 30:31
  Speaker 1: know what it means anymore. Quite interesting. We were talking
• 30:34
  Speaker 1: earlier about bitcoin, and of all the stories that that
• 30:40
  Speaker 1: have narratives around it, the bitcoin narrative seems to be
• 30:44
  Speaker 1: quite fascinating. I think of it as millennial libertarian gold.
• 30:50
  Speaker 1: It's it's a younger generation with certain political beliefs, love
• 30:54
  Speaker 1: the idea of this independent currency free of government restraints.
• 30:58
  Speaker 1: Although that really hasn't seemed to be the way it's
• 31:01
  Speaker 1: worked out, has it. It was a great story. Yeah,
• 31:04
  Speaker 1: the government is capable of taxing you. We now know
• 31:08
  Speaker 1: that on your bitcoining profits, so they can get at
• 31:12
  Speaker 1: your bitco They can as have hackers, you know, they're
• 31:16
  Speaker 1: they're all sorts of new telephone hacks, and they're using
• 31:18
  Speaker 1: it to go after people's bitcoin wallets. And on top
• 31:21
  Speaker 1: of that, a lot of the trades on the bitcoin
• 31:24
  Speaker 1: exchanges are are fake trades, just to uh, in fact,
• 31:28
  Speaker 1: most of on some of them, Yeah, most are you
• 31:32
  Speaker 1: gonna say? Most of the bitcoin trades on certain exchanges
• 31:35
  Speaker 1: are are fake? Are not real? They are not Well,
• 31:38
  Speaker 1: I've read this, so I'm sorry. Now I don't want
• 31:40
  Speaker 1: to accuse someone of a crime, but they're not regulated. Uh,
• 31:45
  Speaker 1: and they're doing the story is this is a narrative
• 31:48
  Speaker 1: which I'm repeating, is that they do wash trades. Uh.
• 31:53
  Speaker 1: They want to show a lot of volume, which makes
• 31:57
  Speaker 1: it more credible as a currency. Yeah, that's how you.
• 32:02
  Speaker 1: There has been in the history a lot of stock
• 32:04
  Speaker 1: manipulation too, and we have to thank the sec for
• 32:09
  Speaker 1: um for clamping down on that because that that would happen.
• 32:14
  Speaker 1: So so some of the things we've talked about have
• 32:17
  Speaker 1: been conspiracy theories to some degree. Why in the modern era,
• 32:24
  Speaker 1: with our access to all this science and technology and
• 32:29
  Speaker 1: and fact finding in truth sites, why have have these
• 32:34
  Speaker 1: conspiracy theories become so prevalent? Is this something fundamental about
• 32:39
  Speaker 1: human beings and the way our minds operate. I mean,
• 32:42
  Speaker 1: not just the moon landing hoax, but anti vaxer's. There's
• 32:47
  Speaker 1: even a rise of flat earthers. What what is that about? Well,
• 32:51
  Speaker 1: there is a First of all, there are conspiracies in
• 32:54
  Speaker 1: his We know that there are conspiracy so a rational
• 32:57
  Speaker 1: person has to be alert to possible can spiracies. But
• 33:01
  Speaker 1: we also know that there is a a personality type
• 33:06
  Speaker 1: that uh or maybe it's yeah, a personality type that
• 33:11
  Speaker 1: is h very UH influenced by conspiracy stories. They used
• 33:17
  Speaker 1: to UH in the American Psychiatric Association's Diagnostic and Statistical Manual,
• 33:23
  Speaker 1: they used to talk about paranoid schizophrenic people they have
• 33:28
  Speaker 1: hallucinations about conspiracies. But in the latest edition they've separated
• 33:33
  Speaker 1: it from schizophrenia and they now have something called paranoid
• 33:36
  Speaker 1: personality disorder. So these are the extremes, and they're they're
• 33:41
  Speaker 1: not schizophrenic, there's just something out about them. They're constantly
• 33:44
  Speaker 1: imagining conspiracies. So there are a certain fragment of our population,
• 33:49
  Speaker 1: and people who are who are not suffering from any
• 33:53
  Speaker 1: disorder but who are very inordinately focused on on conspiracies
• 34:00
  Speaker 1: are even more numerous. So if you find someone who
• 34:03
  Speaker 1: believes one conspiracy, talk to him further and there will
• 34:07
  Speaker 1: probably be many more conspiracies that this person. If it
• 34:10
  Speaker 1: goes a little bit, you can get a little bit crazy.
• 34:14
  Speaker 1: So the Federal Reserve has been a subject of all
• 34:18
  Speaker 1: manner of conspiracy theories. Um, going back to the book
• 34:21
  Speaker 1: The Creature from jack'l Islands, what is it about central
• 34:25
  Speaker 1: bankers that lend themselves to these theories? Is that just
• 34:30
  Speaker 1: a good narrative tale of a bunch of bankers secretly
• 34:33
  Speaker 1: manipulating the economy from you know, behind the curtain. What
• 34:37
  Speaker 1: what makes this such a compelling And there's a whole
• 34:40
  Speaker 1: group of people who whose narratives are they just hate
• 34:43
  Speaker 1: the Fed. We should end the Fed, get rid of
• 34:45
  Speaker 1: the Fed. What is it about central bankers that lends
• 34:48
  Speaker 1: itself so easily to to these theories? Well, I think
• 34:52
  Speaker 1: it's Uh, it sounds okay. I'm trying to focus like
• 34:57
  Speaker 1: a literary expert who explains why some story is popular. Uh,
• 35:02
  Speaker 1: it's partly because we're impressed by the monetary they's just
• 35:07
  Speaker 1: like we're impressed by bitcoin or bi metalism. So it's
• 35:10
  Speaker 1: a story about something mysterious. We have these pieces of
• 35:12
  Speaker 1: paper in our pocket, and why are they valuable? They're
• 35:16
  Speaker 1: just pieces of paper. It's kind of a mystery. It
• 35:19
  Speaker 1: has to do with power and feeling small. It makes
• 35:23
  Speaker 1: you feel bigger and more important if you discover a
• 35:26
  Speaker 1: a conspiracy resentment of people who maybe look more successful
• 35:34
  Speaker 1: than you, and it's it's it's yeah, it's a bit
• 35:37
  Speaker 1: of a mystery story too, that you've uncovered something that
• 35:41
  Speaker 1: nobody knows, right, that most people are not evely assume
• 35:45
  Speaker 1: isn't happening, so you can tell it's it's a good narrative.
• 35:49
  Speaker 1: So so, since we're talking about central bankers. Um in
• 35:53
  Speaker 1: the book, you reference Stephen Invests, governor of Sweden's ricks Bank, Um,
• 36:00
  Speaker 1: who said quote, I'm a weatherman, I'm a showman, and
• 36:03
  Speaker 1: I'm an economist, but above all, I'm a storyteller. I
• 36:08
  Speaker 1: tell stories about the future. How true is that for
• 36:12
  Speaker 1: for central bankers? Yeah, I think he's right. The question
• 36:17
  Speaker 1: to me is what's more important the actions they take
• 36:22
  Speaker 1: or the words they say after the of f O
• 36:26
  Speaker 1: m C meeting. Is it the meeting or is it
• 36:28
  Speaker 1: the press conference after um or or the nature of
• 36:32
  Speaker 1: their statement. So I like to think that when the
• 36:35
  Speaker 1: FED cut the lower bound to the federal funds rate
• 36:39
  Speaker 1: to zero and right after this the rate recession, that
• 36:46
  Speaker 1: that story brought up another narrative that is dangerous, and
• 36:50
  Speaker 1: that is the narrative of Japan in the nine nineties
• 36:55
  Speaker 1: when they cut their interest rate to zero, the Bank
• 36:58
  Speaker 1: of Japan, and they were uh, and they had it
• 37:02
  Speaker 1: stuck at zero or negative it still is. That's like
• 37:06
  Speaker 1: thirty years later and they had a lost decade. Then
• 37:10
  Speaker 1: it turned out to be lost decades. The story was
• 37:13
  Speaker 1: that Japan looked like the greatest strongest economy in the
• 37:16
  Speaker 1: world in the ES. They wrote lots of books about that,
• 37:20
  Speaker 1: and then something went wrong, uh, and then they couldn't
• 37:24
  Speaker 1: get out of it. So I think it was a
• 37:27
  Speaker 1: mistake to put ourselves into the camp of zero interest
• 37:31
  Speaker 1: rate countries. They could have kept it at basis points
• 37:35
  Speaker 1: and not used the Z word, as I call it
• 37:39
  Speaker 1: the zero bounty, because it then it makes the Japanese
• 37:43
  Speaker 1: narrative our narrative. If you look at the nick bubble
• 37:47
  Speaker 1: in the eighties, I believe I've seen some some analyzes
• 37:51
  Speaker 1: that say they were four times as expensive as the
• 37:54
  Speaker 1: dot com stocks. It was a giant pebble, really, so
• 37:58
  Speaker 1: that collapse is still in one. The cape ratio was
• 38:01
  Speaker 1: getting up sixty or seventy. Uh, it was really high.
• 38:05
  Speaker 1: And what were we in the thirties, Uh, during the
• 38:08
  Speaker 1: dot com collapse, So we got up to the maximum
• 38:12
  Speaker 1: at the dot Com peak was in the United States,
• 38:16
  Speaker 1: So this is almost double that engine. Yeah, it was
• 38:18
  Speaker 1: a lot higher. That's amazing. Let's let's talk about another
• 38:22
  Speaker 1: narrative that I found fascinating from the from the book
• 38:26
  Speaker 1: the shift from conspicuous consumption to uh, the modern frugality
• 38:32
  Speaker 1: and early retirement. How does something like that change over
• 38:37
  Speaker 1: what was it twenty years from the conspicuous consumption era
• 38:40
  Speaker 1: to spend as little money as possible and the fire
• 38:44
  Speaker 1: group they invest and retire early group. Yeah, that might
• 38:48
  Speaker 1: be happening. Uh, that is not. We still have a
• 38:54
  Speaker 1: very strong consumption demand at this point in history. That
• 38:58
  Speaker 1: might be something that would turn around with the next
• 39:00
  Speaker 1: recession even when it comes. But the big time when
• 39:04
  Speaker 1: it did turn around, and its legendary is the in
• 39:09
  Speaker 1: so in the in the roaring twenties, people were you know,
• 39:13
  Speaker 1: that was the great gat speed time. People loved conspicuous consumption. Uh.
• 39:19
  Speaker 1: And then something changed quite quickly after after the stock
• 39:24
  Speaker 1: market crash of October Uh. And I found that narratives.
• 39:30
  Speaker 1: But first of all, Christina Romer Economic History and c
• 39:34
  Speaker 1: E A chairman at one point showed that consumption demand
• 39:39
  Speaker 1: dropped immediately after the twenty nine crash, Like why did
• 39:43
  Speaker 1: people stop spending right at that moment? One way of
• 39:48
  Speaker 1: learning about it is to go to the Sunday following
• 39:50
  Speaker 1: the crash and listen to sermons. And they used to
• 39:53
  Speaker 1: report sermons and newspapers. Famous preachers would get into the
• 39:57
  Speaker 1: newspaper for their sermon. It doesn't doesn't happen anymore. So
• 40:01
  Speaker 1: I could read a little bit about what this and
• 40:04
  Speaker 1: the sermons were very moralizing. But where we've been in
• 40:07
  Speaker 1: this age of excess and now the stock market is
• 40:11
  Speaker 1: crashing and it serves them, right, these pretentious, rich, show
• 40:16
  Speaker 1: off people. So so there was something already bruin. There
• 40:20
  Speaker 1: was some dissatisfaction with the twenties that was developing, and
• 40:24
  Speaker 1: it led to a different attitude in the thirties. Um
• 40:27
  Speaker 1: that Winterfreed Holtby was a columnist back then, and she
• 40:31
  Speaker 1: said one of her one of her columns, dare to
• 40:34
  Speaker 1: be poor. There's so much more to I can't quote
• 40:38
  Speaker 1: her exactly, but there's so much more to life than
• 40:41
  Speaker 1: just keeping up appearances and showing off. So that attitude
• 40:46
  Speaker 1: came back, uh, and I think that was part of
• 40:48
  Speaker 1: the Great Depression. It also means the Great Depression wasn't
• 40:52
  Speaker 1: as altogether bad as you might think, because it relieved
• 40:57
  Speaker 1: you of the of the obligation the show off. You
• 41:01
  Speaker 1: could blame it on the recession and people would be
• 41:03
  Speaker 1: perfectly under. On the depression, people would be perfectly understanding.
• 41:08
  Speaker 1: They knew that some tragedy had fallen. Unfortunately, this was
• 41:12
  Speaker 1: also a self fulfilling prophecy. It kept us in the depression,
• 41:16
  Speaker 1: but it may have made life more livable. So that
• 41:20
  Speaker 1: raises an interesting question. Can can we talk ourselves into
• 41:23
  Speaker 1: a recession if the economy is other otherwise fine and
• 41:28
  Speaker 1: people are starting to get nervous about maybe it's a
• 41:32
  Speaker 1: manufacturing contraction, maybe it's part of the trade war, a taffs.
• 41:36
  Speaker 1: Can can we convince ourselves that a recession is coming
• 41:41
  Speaker 1: and that affects our behavior that makes a recession come? Absolutely,
• 41:46
  Speaker 1: That's that's what I think is at risk right now.
• 41:51
  Speaker 1: If you go to Google trends, you will to look
• 41:55
  Speaker 1: that allows you to find out what people are searching
• 41:57
  Speaker 1: for through time. There was a huge surge in searches
• 42:01
  Speaker 1: for the term recession in two thousand seven, just before
• 42:05
  Speaker 1: the recession began, and we see another such surge right now.
• 42:10
  Speaker 1: So Google trends has been used to predict influenza epidemics.
• 42:14
  Speaker 1: It can also be a that way of predicting economic
• 42:17
  Speaker 1: narrative epidemics. So somehow we are really talking about recession
• 42:22
  Speaker 1: and we're not in a recession. So we'll see what happens.
• 42:25
  Speaker 1: It may well trigger every session. Let's let's talk about
• 42:28
  Speaker 1: something that's been around for a long time, and it's
• 42:31
  Speaker 1: how technology is going to take all our jobs away. Uh.
• 42:35
  Speaker 1: First it was automation, then it was artificial intelligence. Now
• 42:39
  Speaker 1: it's robots are coming for our jobs. Why why is
• 42:42
  Speaker 1: this such a persistent theme throughout hundreds of years? It
• 42:46
  Speaker 1: goes back thousands of years actually, but not as strong.
• 42:49
  Speaker 1: It's it's it started with the Luddites in eighteen eleven
• 42:53
  Speaker 1: and then the swing riots in the eighteen twenties where uh,
• 42:58
  Speaker 1: common labor was being replaced by uh we you know,
• 43:01
  Speaker 1: fat fabric machines and factories or or agricultural devices that
• 43:08
  Speaker 1: simplified harvesting. Um. But it's it's so this narrative has
• 43:14
  Speaker 1: been around for about two hundred years, but it flares
• 43:18
  Speaker 1: up at certain times. It's like a disease. It mutates,
• 43:22
  Speaker 1: and the narrative mutates, and it flares up and it
• 43:24
  Speaker 1: can cause problems. Uh. It did that in the eighteen seventies,
• 43:30
  Speaker 1: uh and uh or in the eighteen nineties and the
• 43:34
  Speaker 1: ninet especially in the Great Depression of the nineteen thirties
• 43:37
  Speaker 1: that they were talking about robots in the nineteen thirties,
• 43:41
  Speaker 1: and they were worried that this is it, this is
• 43:43
  Speaker 1: a major this will go down in here. The year
• 43:45
  Speaker 1: ninety nine will go down in history as a major
• 43:49
  Speaker 1: turning point when people of common labor will be impoverished
• 43:53
  Speaker 1: from now on. That was something a lot of people
• 43:56
  Speaker 1: believed and discourage them from spending because they thought, I
• 44:01
  Speaker 1: better start saving for this feature that's coming. But then
• 44:05
  Speaker 1: we that's not part of our story about the Great
• 44:08
  Speaker 1: Depression because that was something that didn't It was something
• 44:12
  Speaker 1: that false theory. It didn't happen um and and so
• 44:16
  Speaker 1: we've just don't no longer attach that to the explanations
• 44:20
  Speaker 1: of that event. So what about the modern era where
• 44:25
  Speaker 1: we're seeing automation replace a lot of jobs. We're seeing
• 44:29
  Speaker 1: software and artificial intelligence. On Wall Street, half the trading
• 44:33
  Speaker 1: desks have been replaced with software. There's talk about accountants
• 44:37
  Speaker 1: and lawyers seeing a lot of their their work being
• 44:41
  Speaker 1: automated by software. There's even artificial intelligence writing news stories
• 44:47
  Speaker 1: by just identifying specific facts and and putting them together.
• 44:50
  Speaker 1: They have sports, they can do a sports with a
• 44:54
  Speaker 1: data feed. So, so is there a reason to be
• 44:58
  Speaker 1: concerned or let me rephrase that some of these stories
• 45:02
  Speaker 1: would sound silly and scary and retrospective, appear to have
• 45:06
  Speaker 1: some degree of truth. That technology does replace certain, at
• 45:11
  Speaker 1: least repetitive non creative jobs. Well, I wouldn't say, uh,
• 45:17
  Speaker 1: is translation a repetitive non creative Probably Well, if you're
• 45:21
  Speaker 1: translating poetry, not if you're translating something from French to
• 45:25
  Speaker 1: English or from uh, you know, Google Translate, you could
• 45:29
  Speaker 1: basically get a not great but usable translation of of
• 45:35
  Speaker 1: just about any language to any language. So I think
• 45:38
  Speaker 1: there is reason to worry. And it goes back to
• 45:40
  Speaker 1: the notion that economists have that the in an competitive
• 45:46
  Speaker 1: equilibrium perfect equilibrium, UM, people's wages are there equal to
• 45:51
  Speaker 1: their marginal product. If you have to sell for what
• 45:54
  Speaker 1: you can get and there's no sympathy or morality that intervenes,
• 46:00
  Speaker 1: then you're you're gonna get you what you can contribute
• 46:03
  Speaker 1: at the margin. And the problem with that is that
• 46:06
  Speaker 1: technology changes that. It's not your fault. So there's no
• 46:10
  Speaker 1: reason to think that it can't happen. It hasn't happened, um,
• 46:16
  Speaker 1: But maybe maybe the turning point is about to come,
• 46:20
  Speaker 1: or it has already started coming. Within inequality is rising.
• 46:23
  Speaker 1: It's partly because the problem is whether we can invent
• 46:27
  Speaker 1: new roles for ourselves that would value people, uh as
• 46:33
  Speaker 1: opposed to robots. I think we don't know. But but
• 46:38
  Speaker 1: nobody can speak authoritatively about the future. Uh so, so
• 46:43
  Speaker 1: it becomes a place for narratives. So so let's talk
• 46:47
  Speaker 1: about not the future but the past. How do narratives
• 46:51
  Speaker 1: change over time? You you mentioned the Great Depression. It
• 46:55
  Speaker 1: sounds like the narratives around the Great Depression have morphed
• 46:59
  Speaker 1: so real times, from the twenties to the thirties to
• 47:02
  Speaker 1: the present day. Yeah, the the if you do account
• 47:06
  Speaker 1: of the phrase great Depression, it has been growing ever
• 47:11
  Speaker 1: since it maybe the end of World War Two. They
• 47:14
  Speaker 1: didn't call it the Great Depression. In the Great Depression?
• 47:16
  Speaker 1: What then? Uh they they would call it hard times,
• 47:22
  Speaker 1: But it wasn't singling it out with a special name.
• 47:28
  Speaker 1: When did that start? There was a book written in
• 47:30
  Speaker 1: nineteen thirty four by Lionel Robbins at the London School
• 47:33
  Speaker 1: of Economics called the Great Depression, So yeah, it was.
• 47:37
  Speaker 1: It was a book. It was talked about. So you'll
• 47:40
  Speaker 1: see references to the Great Depression from nine thirty four on.
• 47:44
  Speaker 1: But it became kind of a story of our lives
• 47:47
  Speaker 1: later and it gradually grew. It was growing continually, pretty
• 47:51
  Speaker 1: much continually in terms of counts of that use of that.
• 47:55
  Speaker 1: In the nineteen fifties, John Kenneth Galbray throughout a book
• 47:59
  Speaker 1: called ninety nine The Crash. Uh. That was a best seller,
• 48:04
  Speaker 1: and I got a lot of attention. People began to worry,
• 48:07
  Speaker 1: are they've been worrying all that time about it possibly
• 48:09
  Speaker 1: coming back? But it didn't because there wasn't The narrative
• 48:15
  Speaker 1: was growing, but it wasn't focused on something that's about
• 48:18
  Speaker 1: to happen. And it came back in two thousand seven
• 48:22
  Speaker 1: with vengeance when uh George W. Bush gave a speech
• 48:27
  Speaker 1: that was later described as very much like uh Franklin
• 48:33
  Speaker 1: Delano Roosevelt's the only thing we have to fear is
• 48:36
  Speaker 1: fear itself speech. Uh So uh George W. Bush translated
• 48:42
  Speaker 1: that into anxiety can feed anxiety, But it was he
• 48:46
  Speaker 1: gave the same talk so and a lot of people
• 48:49
  Speaker 1: remember that. You wouldn't think that one talk from three
• 48:53
  Speaker 1: would still be remembered. Were very selective in what we remember.
• 48:57
  Speaker 1: That was such a catchy phrase, the only thing we
• 49:00
  Speaker 1: to fear is fear itself. You know, it's funny you
• 49:02
  Speaker 1: mentioned um George Bush heading into the financial crisis during
• 49:08
  Speaker 1: oh eight oh nine. I was calling it the financial crisis,
• 49:12
  Speaker 1: but it seems a few years later we started calling
• 49:15
  Speaker 1: it the great recession. That that name seems to have
• 49:18
  Speaker 1: It was a credit crisis, it was the subprime debacle.
• 49:21
  Speaker 1: It seemed to have changed over time. How common is
• 49:25
  Speaker 1: that historical revisionism with the giant uh viral events. By
• 49:32
  Speaker 1: the way, that the term great recession was first applied
• 49:37
  Speaker 1: to the seventy five recession in a book by Otto
• 49:42
  Speaker 1: ex Dyn, I think that was the title of his book,
• 49:44
  Speaker 1: the Great Recession um, and that was a giant By
• 49:48
  Speaker 1: the way, for people don't remember, stock market fell almost
• 49:51
  Speaker 1: is the same amount as it fell in Awight o nine.
• 49:54
  Speaker 1: It was about a fifty seven percent drop at least
• 49:57
  Speaker 1: the dal Jones almost serious recession are oil embargo that
• 50:02
  Speaker 1: whole earlier, and big inflation that was not a fun period.
• 50:06
  Speaker 1: And then in nineteen eighty through eighty two we had
• 50:09
  Speaker 1: twin recessions, the double dip. Yeah, this is the second
• 50:12
  Speaker 1: oil crisis now, And there were people around at that
• 50:16
  Speaker 1: time who called it the Great recession, but none of
• 50:20
  Speaker 1: those stuck and I'm not sure why. Um uh and uh.
• 50:24
  Speaker 1: You can't control these these narrative epidemic. So I have
• 50:28
  Speaker 1: to admit I now sometimes refer to the two thousand
• 50:31
  Speaker 1: eight nine recession as the Great Recession, because everybody knows
• 50:34
  Speaker 1: what I mean When I say that you lose the battle.
• 50:38
  Speaker 1: I'm saying, no, it's the nineteen seventy four seventy five recession. Also,
• 50:42
  Speaker 1: even the word recession wasn't used until ninety eight. Oh really,
• 50:47
  Speaker 1: what was the more common phrase depression? Really? So I
• 50:51
  Speaker 1: know we had a number of market crashes and economic events.
• 50:55
  Speaker 1: We're at the nineteenth century, before there was a federal reserve.
• 51:00
  Speaker 1: Those were not cold recessions. They were called depressions. Well,
• 51:03
  Speaker 1: there might have been some creative use of the word,
• 51:05
  Speaker 1: but it wasn't the name for them. So yeah, they
• 51:09
  Speaker 1: would talk about, um, business depression. They didn't say depression either,
• 51:14
  Speaker 1: They say business depression, but it wasn't clear that that
• 51:17
  Speaker 1: was a name for a phenomenon is just yeah, like
• 51:20
  Speaker 1: business downturn. I could say economic contraction. Is that a
• 51:23
  Speaker 1: more modern use? Have to check that one. It sounds
• 51:26
  Speaker 1: that sounds like it came in with Burns and Mitchell
• 51:29
  Speaker 1: and the book. I'm not sure, but the language does change,
• 51:34
  Speaker 1: but the language changes means something because different words have
• 51:38
  Speaker 1: different connotations on associations in our mind. Quite fascinating. Before
• 51:43
  Speaker 1: we get into some questions we didn't get to. I
• 51:46
  Speaker 1: remember you and I doing a television hit together. It
• 51:50
  Speaker 1: had to be like oh five or six, talking about
• 51:55
  Speaker 1: the house flippers and how prices had run away, and
• 51:59
  Speaker 1: people looked at us like we were crazy. I think
• 52:03
  Speaker 1: it was it was it was Griffith. His name Bill Griffith,
• 52:08
  Speaker 1: Bill Griffith. I mean, my memory isn't I think? I
• 52:11
  Speaker 1: think I remember that event, and and I just recall
• 52:15
  Speaker 1: that any time you anybody brought up the possibility that, hey,
• 52:19
  Speaker 1: you know, these things don't grow to the sky forever.
• 52:22
  Speaker 1: Rates are crazy low, they can't stay that way forever.
• 52:25
  Speaker 1: In the midst of the boom. If you bring up
• 52:28
  Speaker 1: the narrative that this is going to end and end badly,
• 52:32
  Speaker 1: people look at you like you're you know, like you
• 52:35
  Speaker 1: have the plague. It was an astonishing period. Yeah, I
• 52:40
  Speaker 1: I remember that. It was emotionally difficult the experience to make.
• 52:45
  Speaker 1: And although you've never been afraid of taking a unpopular
• 52:50
  Speaker 1: contrarian position, most of which turned out to be correct
• 52:53
  Speaker 1: over time. Yeah, it with some anxiety though, because I'm
• 52:57
  Speaker 1: basing it on things that are not leading indicators identified
• 53:01
  Speaker 1: by statisticians and uh, I have a sense that some
• 53:06
  Speaker 1: of these leading indicators became leading indicators because of a
• 53:09
  Speaker 1: self fulfilling Once people believe they're a leading indicator, they
• 53:14
  Speaker 1: they make it happen. So there's a little chicken and
• 53:17
  Speaker 1: egg problem with that, because they don't become resonant until
• 53:21
  Speaker 1: they have a track record. So some of it just
• 53:23
  Speaker 1: becomes a little luck as to what happened to work
• 53:26
  Speaker 1: once before. How important is luck to not just one
• 53:31
  Speaker 1: thing going viral, but something becoming a regular resource that
• 53:37
  Speaker 1: people use for decades. I don't know how to answer that.
• 53:40
  Speaker 1: I say it reminds me of a book by not
• 53:43
  Speaker 1: seem Toler called Fooled by Randomness, and it takes the
• 53:47
  Speaker 1: form of a no, it's a great fun about a
• 53:51
  Speaker 1: man named Nero Tulip, which is the author. Is this
• 53:54
  Speaker 1: a distortion of the authors? It's autobiographical? But you go
• 53:58
  Speaker 1: through life feeling ashamed and elated when random events made
• 54:03
  Speaker 1: you a success or a failure, and you just can't
• 54:06
  Speaker 1: believe that it's just random. Well, we have a tendency
• 54:11
  Speaker 1: to want to take credit for things that work out
• 54:14
  Speaker 1: and want to blame outside factors. Yeah, but you might
• 54:18
  Speaker 1: actually blame yourself. People do blame that. They won't do
• 54:21
  Speaker 1: it publicly, but internally they get depressed. And that's that's
• 54:25
  Speaker 1: because they a little imposter syndrome or or something that. Yeah,
• 54:31
  Speaker 1: so a couple of questions we didn't get to that
• 54:34
  Speaker 1: that I have to ask you about. Um. So you've
• 54:38
  Speaker 1: written a ton about market bubbles and investor behavior. Um,
• 54:42
  Speaker 1: but behavioral economics is more diagnostic than prescriptive. It tells
• 54:47
  Speaker 1: what could be done, rather than advise people what to do.
• 54:52
  Speaker 1: And that kind of reminds me a little bit of
• 54:54
  Speaker 1: the bias blind spot. How people, um have an inability
• 54:59
  Speaker 1: to see their own biases. So so what can investors do? Uh?
• 55:05
  Speaker 1: If we know we're all biased, but we personally don't
• 55:08
  Speaker 1: see our own biases. Well, UM, I don't have a
• 55:13
  Speaker 1: good I can tell you what books to read. How
• 55:15
  Speaker 1: about Danny Danny Kaneman's Thinking Fast and Slow. That's been
• 55:20
  Speaker 1: a best seller. Uh, And it tells you about lots
• 55:23
  Speaker 1: of biases that you probably have, and you didn't know
• 55:26
  Speaker 1: about it, um. And then two stories I had I
• 55:30
  Speaker 1: have to ask um from the book. One is about
• 55:34
  Speaker 1: blue jeans just dungarees. How has that I'm wearing. I'm
• 55:39
  Speaker 1: wearing stretch blue jeans, which kind of made me think
• 55:43
  Speaker 1: of how blue jeans have changed over time. It started
• 55:47
  Speaker 1: out that this was for farmers and ranchers. Well even yeah,
• 55:51
  Speaker 1: it's right, they were work clothes. Uh. And in the
• 55:54
  Speaker 1: eighteen sevent dies, I think there was a governor of
• 55:57
  Speaker 1: Indiana called blue Jeans Bill who would wear blue jeans
• 56:01
  Speaker 1: to formal occasions and that he thought he was crazy,
• 56:05
  Speaker 1: but he made him famous and he was just didn't
• 56:08
  Speaker 1: want to be pretentious. Man was it? Was it real?
• 56:11
  Speaker 1: Was he a man of the people governor? And man? Yeah,
• 56:15
  Speaker 1: a man of the people who wanted to show that
• 56:16
  Speaker 1: he was. And it's had that sense to it ever since.
• 56:20
  Speaker 1: It's Uh, I'm I'm real, I'm not the fake. Uh.
• 56:25
  Speaker 1: It developed in the nineteen twenties further with the dude ranches.
• 56:29
  Speaker 1: That was another new Uh. That's where you would go
• 56:32
  Speaker 1: to a ranch and you'd ride horses and lassue and
• 56:36
  Speaker 1: pretend to be a cowboy, pretend you were a city person.
• 56:38
  Speaker 1: But you could do it for a week and you'd
• 56:40
  Speaker 1: buy a pair of blue jeans and then and then
• 56:43
  Speaker 1: it kind of showed that you were into the in things.
• 56:46
  Speaker 1: You were doing dude ranchy things. And then in the
• 56:49
  Speaker 1: nineteen thirties it became fashion and that's when they started
• 56:52
  Speaker 1: ripping their blue jeans and making them look worn, uh
• 56:56
  Speaker 1: to heighten the effect. Uh. And then it got h
• 57:00
  Speaker 1: impetus uh from uh The Rebel without a Car James Dean,
• 57:08
  Speaker 1: where he fashionably wore blue jeans for the whole movie,
• 57:12
  Speaker 1: and it had that was a powerful narrative that that
• 57:15
  Speaker 1: movie was admired. Right. He died in a crash driving
• 57:20
  Speaker 1: a Porsche like a month before the movie came out.
• 57:23
  Speaker 1: Kind of that kind of made the movie go viral,
• 57:26
  Speaker 1: didn't it. Yeah, it depends on things like that. Becoming
• 57:29
  Speaker 1: assassinated helps your narrative, or murdered or or or die
• 57:34
  Speaker 1: in a accident that reveals your reckless side, which is
• 57:37
  Speaker 1: what James Dean did. He was speeding, right, and that
• 57:41
  Speaker 1: was part of the character in the film. Yes, Uh,
• 57:47
  Speaker 1: it was. It was a good movie resonated. Um. So,
• 57:51
  Speaker 1: So the other thing I had to ask you about
• 57:54
  Speaker 1: was on expectations um. Pedro Domingos is a machine driven
• 58:00
  Speaker 1: linguisting linguistic processing expert at Hedge Fund daw And and
• 58:06
  Speaker 1: his quote, emerging narratives determine expectations, and expectations determine everything else.
• 58:13
  Speaker 1: How important are expectations to to narratives? Right? Well, I think, uh,
• 58:18
  Speaker 1: this is older tradition and economics where people would ask people,
• 58:22
  Speaker 1: what what do you expect the inflation rate to be
• 58:24
  Speaker 1: this year? Uh? George Katona, who was a founder of
• 58:29
  Speaker 1: the Michigan Consumer sentiment Well, one of the founders of
• 58:32
  Speaker 1: the Michigan Consumer said that he interviewed people and I
• 58:35
  Speaker 1: talked to them directly, and he would ask them, what
• 58:37
  Speaker 1: do you think the inflation rate will be this year?
• 58:40
  Speaker 1: And he got the impression he said that people don't
• 58:43
  Speaker 1: really Uh, they looked lost, what what is the inflation rate?
• 58:49
  Speaker 1: I don't have any clear idea And then if he
• 58:52
  Speaker 1: pressed them, they'd come up with a number. So he said,
• 58:55
  Speaker 1: they don't exactly have expectations. But maybe a lot of
• 59:00
  Speaker 1: people don't. Um, but maybe it's uh, it's more like
• 59:05
  Speaker 1: stories about they heard that the price of something went
• 59:10
  Speaker 1: up over the last year and it's been doing that Uh.
• 59:16
  Speaker 1: And so they're upset and they're angry. Uh and uh,
• 59:20
  Speaker 1: they can talk like that. If you force them to
• 59:23
  Speaker 1: do it, then they'll just say, Okay, my expectation is
• 59:25
  Speaker 1: ten percent. But they didn't have it. Someone once said
• 59:30
  Speaker 1: that the reason oil and guessoline prices are so important
• 59:34
  Speaker 1: to people's expectations inflation expectations is it's the only product
• 59:39
  Speaker 1: you buy that the price is displayed in toll numbers
• 59:44
  Speaker 1: on fort toll signs, and so you everybody sees it.
• 59:48
  Speaker 1: You can't help but notice it. How important is that too?
• 59:52
  Speaker 1: Stories of prices rising or fall. Yeah, So visual images
• 59:58
  Speaker 1: matter for stories. Also, a sense of identity matters. So
• 1:00:03
  Speaker 1: the inflation problem became the most serious problem facing the
• 1:00:07
  Speaker 1: country according to Gallup polls in some time in the
• 1:00:11
  Speaker 1: seventies eighties, maybe say seventies. Uh. And we had a
• 1:00:15
  Speaker 1: very big bout of inflation during that era. Uh right, So,
• 1:00:22
  Speaker 1: but I think that what I was gonna say is
• 1:00:24
  Speaker 1: that it not only affected people's lives directly, but it
• 1:00:30
  Speaker 1: also made them angry. And they started blaming labor unions
• 1:00:34
  Speaker 1: for the inflation, for bidding up, for forcing companies to
• 1:00:37
  Speaker 1: wage price raise prices in order to pay the higher
• 1:00:41
  Speaker 1: wages they were paying the unionized members, and it led
• 1:00:44
  Speaker 1: to a public reaction against unions, and it led to
• 1:00:48
  Speaker 1: ultimately to Ronald Reagan and a general diffusing of the
• 1:00:54
  Speaker 1: power of unions. Now by the time the seventies and
• 1:00:57
  Speaker 1: eighties came around, hadn't unions have been fooling for for
• 1:01:01
  Speaker 1: some time? Well? I don't. Yeah, when I when I
• 1:01:04
  Speaker 1: named Ronald Reagan, I don't mean that he invented the narrative.
• 1:01:08
  Speaker 1: He was uh. He good politicians know that they can't
• 1:01:13
  Speaker 1: routinely invent there. You can you can add some um
• 1:01:18
  Speaker 1: similar narratives that strengthen it, but you have to accept
• 1:01:21
  Speaker 1: that people are onto a certain story. And to be
• 1:01:24
  Speaker 1: a successful politician, you want to, uh, you want to
• 1:01:29
  Speaker 1: repeat the story. So he fired the air traffic controllers
• 1:01:33
  Speaker 1: when they went on strike, which I believe was the
• 1:01:35
  Speaker 1: first time something like that had happened. That played right
• 1:01:38
  Speaker 1: into the we're not going to take it from unions
• 1:01:41
  Speaker 1: anymore narrative, right, So he knew how to create a
• 1:01:45
  Speaker 1: new narrative built around a emerging narrative, so it would
• 1:01:49
  Speaker 1: become part of a constellation of anti union narratives, and
• 1:01:53
  Speaker 1: and that had an impact on prices or just public
• 1:01:56
  Speaker 1: perception of that was a major turning point, now just
• 1:02:00
  Speaker 1: for the US, but around much of the world, that
• 1:02:03
  Speaker 1: the inflation rate was up in the double digit range
• 1:02:07
  Speaker 1: per year UM and that it started to come down
• 1:02:11
  Speaker 1: right from that date. So these are big changes in economics. Uh,
• 1:02:17
  Speaker 1: events that are narrative driven. So economists tend often to
• 1:02:21
  Speaker 1: be focused on predicting month to month fluctuations. Uh, and
• 1:02:27
  Speaker 1: not why did there why was there a global peak
• 1:02:30
  Speaker 1: and inflation around? And that I think has to be
• 1:02:35
  Speaker 1: understood through changing narratives. Now, I would credit Paul Vulcar
• 1:02:40
  Speaker 1: and his actions is fed chief raising rates double digits
• 1:02:44
  Speaker 1: in order to break the back of inflation. But you're
• 1:02:46
  Speaker 1: suggesting the narrative favors what Ronald Reagan did. Well, I
• 1:02:51
  Speaker 1: think they both were important. Fact isn't. It's a complicated story.
• 1:02:56
  Speaker 1: But Voker might not have had the political cap to
• 1:03:01
  Speaker 1: do that if if the public wasn't already angry about inflation.
• 1:03:06
  Speaker 1: So it was a it was a courageous thing for
• 1:03:10
  Speaker 1: him two to create the Great Recession it was called
• 1:03:15
  Speaker 1: at the time, uh in in the nineteen eighties. Uh.
• 1:03:19
  Speaker 1: But he he was judging. I think that he did
• 1:03:22
  Speaker 1: have these uh that people were angry about that there've
• 1:03:26
  Speaker 1: been all this talk about controlling inflation. Uh, and it
• 1:03:30
  Speaker 1: just gets worse and worse. And they also believe this
• 1:03:33
  Speaker 1: was part of the popular narrative then that it eats
• 1:03:36
  Speaker 1: into my wallet. They didn't. They didn't think as many
• 1:03:40
  Speaker 1: economists did that it would it would get into their
• 1:03:44
  Speaker 1: paycheck as well, even though they weren't unionized by uh
• 1:03:49
  Speaker 1: by market forces. Huh. Quite quite interesting. So now let
• 1:03:53
  Speaker 1: me get to my favorite questions that we ask all
• 1:03:57
  Speaker 1: of our guests. This is sort of our speed ounds.
• 1:04:00
  Speaker 1: Feel free to go is as short, uh as you want?
• 1:04:04
  Speaker 1: Tell us the first car you ever owned. You're making model.
• 1:04:09
  Speaker 1: My parents gave me a Rambler Ambassador in the nineties
• 1:04:15
  Speaker 1: sixties because it was a safe car. And I don't
• 1:04:19
  Speaker 1: follow my parents too much in detail, but I've been
• 1:04:22
  Speaker 1: buying safe cars ever since. I recall taking a cab
• 1:04:25
  Speaker 1: with you once and in the back seat you put
• 1:04:27
  Speaker 1: on the seatbelt. I don't know a lot of people
• 1:04:29
  Speaker 1: do that, um from a safety perspective. Not the Rambler,
• 1:04:34
  Speaker 1: by the way, not the Porsche Speedster that James Dean,
• 1:04:37
  Speaker 1: that's right, I'm not a James Dean Duke. Um, what's
• 1:04:41
  Speaker 1: the most important thing people do not know about Bob Schiller? So? Uh,
• 1:04:47
  Speaker 1: I don't know what's important about me? Uh? Is it
• 1:04:50
  Speaker 1: something about my personality? What? What do people not know
• 1:04:54
  Speaker 1: about you? Uh? Well, I okay, I'm thinking, Uh, this
• 1:05:00
  Speaker 1: is just off the wall thought. But uh, I think
• 1:05:03
  Speaker 1: people differ in their um uh, their ability to focus attention,
• 1:05:10
  Speaker 1: and their ability to complete projects. I think I did.
• 1:05:15
  Speaker 1: I was a project oriented person from childhood, but distractable.
• 1:05:22
  Speaker 1: My secretary will tell you I'm distractable, but I keep
• 1:05:26
  Speaker 1: coming back. So I think that people like me should
• 1:05:30
  Speaker 1: do things like write books. And this is what your
• 1:05:34
  Speaker 1: six book? Your how it could be? I say tenth book? Um?
• 1:05:42
  Speaker 1: Who were your early mentors who affected your career? Be
• 1:05:45
  Speaker 1: it in academia or economics? Okay? Um in elementary school,
• 1:05:53
  Speaker 1: I don't know his first name. Mr Keener is my
• 1:05:56
  Speaker 1: science teacher, and he encouraged me I wanted to be
• 1:05:59
  Speaker 1: a sign dentist. Really I am a social scientist. And
• 1:06:04
  Speaker 1: also my high school geometry teacher, Mr Sucy I think
• 1:06:09
  Speaker 1: it was Roger Suci and now know his first name?
• 1:06:12
  Speaker 1: Who uh encourage me about mathematics and I wrote a
• 1:06:17
  Speaker 1: extra paper for his course, which he didn't even ask for,
• 1:06:20
  Speaker 1: in which I use the differential calculus to derive a
• 1:06:24
  Speaker 1: formula for the length of a spiral, And he was
• 1:06:28
  Speaker 1: so encouraging. You're doing original mathematics. I assume somebody else
• 1:06:32
  Speaker 1: has already done that, but I don't know where. I
• 1:06:36
  Speaker 1: assume I got it right. I don't know, so um,
• 1:06:40
  Speaker 1: tell us about some of your favorite books. You've mentioned
• 1:06:42
  Speaker 1: numerous books so far. What what books do you really enjoy?
• 1:06:46
  Speaker 1: What do you read for pleasure or fun? See? One
• 1:06:50
  Speaker 1: thing is that I am distractable, so I often don't
• 1:06:53
  Speaker 1: finish them. I jump around and look for interesting places.
• 1:06:57
  Speaker 1: Are you reading like three or four books at once?
• 1:07:00
  Speaker 1: What I'm doing right now? It's strange. I bought in
• 1:07:04
  Speaker 1: an antiquarian bookstore a bound volume of for eighteen forty
• 1:07:09
  Speaker 1: nine of Little Living Age ever heard of it? It
• 1:07:13
  Speaker 1: was an intellectual magazine like the Atlantaker Harper's from that time,
• 1:07:19
  Speaker 1: and I thought, I'll just, you know, every night, I'll
• 1:07:21
  Speaker 1: read one issue of it. Uh, And it just brought me,
• 1:07:26
  Speaker 1: brings me into the year eighteen forty nine. I'm letting
• 1:07:28
  Speaker 1: them decide what I read. Do you do you I
• 1:07:32
  Speaker 1: make discoveries about the path. For example, I discovered that
• 1:07:36
  Speaker 1: women's liberation was already I just read a story about
• 1:07:40
  Speaker 1: famous women poets in that in that volume in eighteen
• 1:07:44
  Speaker 1: forties eighty nine. Yeah, and they didn't mention Emily Dickinson.
• 1:07:49
  Speaker 1: So then I looked it up. She was only nineteen
• 1:07:52
  Speaker 1: years old in eighteen forty nine. What what are the
• 1:07:55
  Speaker 1: books have you? What? What do you like to recommend
• 1:07:58
  Speaker 1: to people? What or what book just resonated with you?
• 1:08:01
  Speaker 1: So I don't know if I recommend books very often,
• 1:08:04
  Speaker 1: But I like autobiographies are of diaries. So the autobiography
• 1:08:09
  Speaker 1: of Benjamin Franklin influenced me. Uh, He's autobiography, not somebody
• 1:08:15
  Speaker 1: else's biography life. Uh. And the diary of um uh
• 1:08:24
  Speaker 1: the name the version wrote the like of of Samuel Johnson,
• 1:08:28
  Speaker 1: James Boswell, Uh and uh, I just like real thing.
• 1:08:34
  Speaker 1: I like to hear people from the past talk to me.
• 1:08:39
  Speaker 1: That's what little the living age is doing for me.
• 1:08:42
  Speaker 1: And having people from the past, I want to go
• 1:08:44
  Speaker 1: back there and hear them. So James Boswell his own autobiography, Yeah,
• 1:08:50
  Speaker 1: in fact it was written on a daily It's really
• 1:08:52
  Speaker 1: a diary what he did today and he did a
• 1:08:56
  Speaker 1: lot of things that were not entirely moral. He didn't
• 1:09:00
  Speaker 1: plan to publish it, apparently from the standards of his age. Um,
• 1:09:06
  Speaker 1: but he was an overall a nice person. Um. What
• 1:09:09
  Speaker 1: do you do for fun? What do you do when
• 1:09:10
  Speaker 1: you're not researching and writing your own books? Uh? I
• 1:09:15
  Speaker 1: read things. I sit with my wife. Now I'm watching
• 1:09:20
  Speaker 1: television more. But it's whatever she chooses. What sort of
• 1:09:24
  Speaker 1: stuff are you watching on TV? Or things like John
• 1:09:27
  Speaker 1: Oliver and uh oh, the PBS News Hour. These are
• 1:09:32
  Speaker 1: her choice. But I liked them too, So that's interesting.
• 1:09:36
  Speaker 1: Tell us about a time you failed and what you
• 1:09:38
  Speaker 1: learned from the experience. Well, I I had a firm
• 1:09:43
  Speaker 1: called Macro Markets that failed, but it didn't completely fail.
• 1:09:49
  Speaker 1: It went under, it uh collapsed. It's no longer in exist,
• 1:09:54
  Speaker 1: but it did leave a legacy, which was what well
• 1:09:58
  Speaker 1: we We wanted to create markets for real estate, and
• 1:10:04
  Speaker 1: there still is. The Chicago Mercantile Exchange still has a
• 1:10:08
  Speaker 1: market that we helped them create based on the SMB
• 1:10:11
  Speaker 1: Case Schiller home Price now Core Logic home price industry.
• 1:10:17
  Speaker 1: So I think what we did change the world, and
• 1:10:20
  Speaker 1: even if it didn't make us rich. See part of
• 1:10:22
  Speaker 1: the inspiration. It's part of the pleasure. I'm living out
• 1:10:25
  Speaker 1: my father's dream, who wanted me to be an entrepreneur.
• 1:10:29
  Speaker 1: There's something about creativity that is rewarding even if the
• 1:10:34
  Speaker 1: business doesn't succeed. Well, you created the cape ratio, and
• 1:10:39
  Speaker 1: I know there are a number of mutual funds based
• 1:10:41
  Speaker 1: on that. There are that that's fairly entrepreneurial, right. Uh, yeah,
• 1:10:47
  Speaker 1: I I have the American it's not just American, the
• 1:10:52
  Speaker 1: entrepreneurial spirit that I got from my father. Um, what
• 1:11:00
  Speaker 1: do you most optimistic and or pessimistic about today? I
• 1:11:07
  Speaker 1: don't like to be too pessimistic, and I'd like to
• 1:11:09
  Speaker 1: do that. Uh, but I am worried about things like
• 1:11:13
  Speaker 1: global warming and possible possible crisis in the planet. Uh.
• 1:11:21
  Speaker 1: You know, we don't like to think about these things.
• 1:11:23
  Speaker 1: I think we should be more concerned about making agreements
• 1:11:27
  Speaker 1: with other countries about how we're going to handle h
• 1:11:31
  Speaker 1: environmental crises like global warming. We might not be able
• 1:11:36
  Speaker 1: to see them now and identify them, but we should
• 1:11:38
  Speaker 1: have some risk sharing agreements. What are we gonna do
• 1:11:41
  Speaker 1: if global warming gets so bad, for example, that some
• 1:11:46
  Speaker 1: country is unlivable, where do they go? You know who
• 1:11:49
  Speaker 1: wants to take them in. That's the problem. That sounds
• 1:11:53
  Speaker 1: like quite the problem. Um. So, if one of your
• 1:11:57
  Speaker 1: students came to you, or a millennial came to you
• 1:12:00
  Speaker 1: when I was looking for career advice about working in
• 1:12:03
  Speaker 1: the field of either behavioral economics or finance, what sort
• 1:12:08
  Speaker 1: of advice would you give them? Well, this would be
• 1:12:11
  Speaker 1: very general. I think that, Uh, finance is an important
• 1:12:16
  Speaker 1: field I teach. I have an online course that's free,
• 1:12:19
  Speaker 1: by the way. On course there are called financial markets.
• 1:12:22
  Speaker 1: And I'm very proud of that because I have educated
• 1:12:25
  Speaker 1: so many people, not just from Yale, but from all
• 1:12:28
  Speaker 1: over the world who went into finance. So I think
• 1:12:31
  Speaker 1: finance is a good field because it solves problems. Uh.
• 1:12:36
  Speaker 1: And it's not the government solving problems, although it can
• 1:12:40
  Speaker 1: also be. There's government finance as well. Uh. And behavioral
• 1:12:44
  Speaker 1: finances just finance coming into reality, I think uh. Uh,
• 1:12:51
  Speaker 1: it's not as behavioral finance is not a job category
• 1:12:55
  Speaker 1: like finances. UH. But I think in order to be
• 1:12:59
  Speaker 1: well rounded, when should know something about it. I tell
• 1:13:02
  Speaker 1: my students, UH, in my course financial markets, even if
• 1:13:06
  Speaker 1: you don't want to go into finance, you should take
• 1:13:09
  Speaker 1: this course because finance is about making things happen realistically.
• 1:13:14
  Speaker 1: How do you finance activities that are useful for society?
• 1:13:19
  Speaker 1: Quite interesting? And our final question, what is it that
• 1:13:22
  Speaker 1: you know about the world of economics and narratives today
• 1:13:26
  Speaker 1: that you wish you knew forty years ago? Uh? I
• 1:13:33
  Speaker 1: think I'm stalling on this one. I wish I knew
• 1:13:35
  Speaker 1: everything that had come up. And there's so many details
• 1:13:39
  Speaker 1: and uh one one thing. I just visited the Behavioral
• 1:13:42
  Speaker 1: Insights team in UM the UK last week and very
• 1:13:46
  Speaker 1: impressed with all the things. But not now. These are
• 1:13:49
  Speaker 1: sprouting up everywhere. They're they're they're consulting groups effectively that
• 1:13:54
  Speaker 1: help people, uh do their they're financing more effectively in
• 1:14:00
  Speaker 1: account of of what we know, and there's so much
• 1:14:04
  Speaker 1: not a lot of it is experimental, and uh, you
• 1:14:08
  Speaker 1: have to try things out and see what how people
• 1:14:11
  Speaker 1: react because how people react is not for not mostly
• 1:14:16
  Speaker 1: predictable based on just the first theory. Quite interesting. Thank you,
• 1:14:20
  Speaker 1: Bob for being so generous with your time. We have
• 1:14:23
  Speaker 1: been speaking with Professor Robert Schiller of Yale University. His
• 1:14:26
  Speaker 1: new book, Narrative Economics, How Stories Go Viral and Drive
• 1:14:31
  Speaker 1: Major Economic Events was released on October one, If you
• 1:14:35
  Speaker 1: enjoy this conversation, we'll be sure and look up an
• 1:14:38
  Speaker 1: inch or down an inch on Apple iTunes and you
• 1:14:40
  Speaker 1: can see any of our prior two hundred and fifty
• 1:14:44
  Speaker 1: or so conversations we've had over the past five years.
• 1:14:48
  Speaker 1: We love your comments, feedback and suggestions right to us
• 1:14:52
  Speaker 1: at m IB podcast at Bloomberg dot net, Go to
• 1:14:55
  Speaker 1: Apple iTunes, give us a nice review. We really appreciate that.
• 1:14:59
  Speaker 1: I would be remin us if I did not think
• 1:15:01
  Speaker 1: the crack staff that helps put this together each week.
• 1:15:04
  Speaker 1: Attica val Broun is our project director, Michael Boyle is
• 1:15:08
  Speaker 1: our booker slash producer, Caroline Ria is our audio engineer today,
• 1:15:14
  Speaker 1: and Michael bat Nick is my head of research. I'm
• 1:15:19
  Speaker 1: Barry Ritolts. You've been listening to Masters in Business on
• 1:15:22
  Speaker 1: Bloomberg Radio.