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>> land copies of the books are behind the register me will have a line right here for the signing afterwards please fold up your chairs. it is my great pleasure to introduce robert schiller an american economist and academic best-selling author progressive 2018 serving as a sterling professor of economics and fellow yale school at the national center for finance. he received the nobel memorial

prize for the analysis of asset prices you'll hear more about his new book narrative economics. viral content is imperative for everyone and that it will propel them into stardom. and in his words if you do not understand that dynamic of that popular narrative you do not understand the changes of the economy and economic behavior. with the first economics what causes bubble and bust in

economic markets has all sorts of possible causes from changes and in his fascinating book he argues to explain what statistics meant and shows how the shift of thinking from the university of cambridge shows an important book please help me to welcome robert schiller to politics and prose. [applause] >> thank you. i want to talk today about going viral however i think the idea is what you might

think it has gotten stronger with the internet that going viral and fake news are old concepts. so how do you translate fig newton into latin? [laughter] it is rumor. it has the same meaning as today. they used to be worried about rumors that it could make or break so it isn't new. so i am interested in understanding economic events like what causes a boom or recession and also why some countries seem to be

prosperous and others not. but you take that unusual perspective that these events happen not because an event like a sunspot book of most of you are not economist when i said sunspots there is a famous article in the late 19th century that is a british economist who said he finally figured out what drives the world economy and why they have booms and bust that has to be something that covers the whole world and then he said it's the sun because the sun goes through periodic storms generating sunspots and

that's it there's not much so shy and sometimes it drags everybody down with it but it turns out he was wrong. the seller - - the solar output is of that variable so what is it? now talking about a recession why would that happen cracks there all these countries thousands of miles apart there might be some good economic reasons but i'm thinking a lot of it is due to talk and going viral people talk it's human nature for those who study

human universals and one absolute is in every human society that they love human interest stories but what they don't do is draw a diagram like the economist do not generally. so it must be that so big changes in the world economy take place because of new and different stories so i coined the term narrative economics before the american economic association in 2017 i presented this to an audience of 900 economist that was critical to the profession at their annual meeting and said why is it we don't study the

stories that go viral? i was afraid i would get booed but they generally don't boo people but nobody booed and they applauded so i wrote a whole book about it. [laughter] so the term narrative economics does go back over a hundred years but it used to mean economic history you would tell chronologies of a financial crisis this bank went under that parliament decided and is just a sequence of events. narrative economics is the study of popular narratives and to get into people's thinking they don't tell you what the economic model is. if you ever had a dinner conversation discussing economic models?

probably not we need to be realistic about what forces change people's thinking. congress has a habit of calling people irrational and also consistent through time not with any new ideas. we have to move past that. narrative economics is about people stories and why economist like to talk about it is it is kind of embarrassing. they don't sound very intellectual some are and some are not but we have to look at the stories that are contagious and that means go viral so when you say go viral that is the disease analogy so

i don't know where i'm going. i will be giving talks in washington this week but they are hour-long talks i have to cut it back a little bit for on - - from the scholarly talk. the key ideas central to this book is to think about epidemiology and academic disciplines are often in the graduate school where i teach at yale you are preparing your students as the most important mission and prepare them to play the game so you focus on research methods with a course in economic history is rare these days but you could use

it up with statistical analysis and then there's no time to read psychology or sociology or god for bed epidemiology. what is that? we don't teach that. that the basic epidemic model from medical schools there is a mathematical epidemiology this furniture is 100 years old so it has developed but the key idea is any disease has a contagion rate the rate of growth of the infected population but there was also a recovery rate or a removal

rate for men they are immune from it but then to get started they have to have a contagion rate above the recovery rate so academics are mysterious in medicine. you will see an academic suddenly out of nowhere. why is there an epidemic in this town and not in the neighboring town? the epidemiologist research that and might say there's something different about this town the contagion rate has gone up so they will change their behaviors if they are together more. so they are more contagion and then you will see an explosion of the disease then it will go down but then to know what

people are doing that is different to make it more contagious. that's what were trying to explore some narratives are very contagious and some are not. so in this bookstore you can have books by talented writers but it's hard to know how they do it. some books are bestsellers and how do you pick? people try to familiarize that to identify the bestsellers called the bestseller code you could give it the text of a book it will give you the information if it will become a bestseller. i don't think that field is very far advanced there is a human element it will be a

long time before computers can capture this it's in the creative genius of some people. one example it's old but i like it because it precedes social media and this is the example of the laffer curve. have you heard of this cracks i get recognition enough you are in a graduate program in economics how did you learn cracks. [laughter] we have a more distinguished audience. >> i ran the computer model for reagan. [laughter]

>> he heard it in the news so some of you younger people might not know but i will tell you the laffer story. art laffer had dinner in 1974 with donald rumsfeld who was secretary of defense and dick cheney who was later the vice president of the united states he is an economist and wall street journal writers pulled out a napkin and drew a diagram why it is we would expect if we cut taxes it would go up so why does that go viral? because it would help to justify tax cuts but it takes

more than that is it the original idea but i can quote art laffer who says no it wasn't an original idea. that it goes all the way back to the economist who wrote in his economics letter in 14th century that it can happen. that it can raise revenue and it is absolutely right and it can happen. we have known that for a long time. so why does this go viral? somehow the napkin fits into the digital imagery. cicero wrote this about 2000 years ago when he says with

visual imagery because people remember it better plus it has a quality at the two continents restroom that doesn't exist but it used to be a nice restaurant in washington dc so somehow they figured out that was a story and it's his individual genius so it came out the same time as rubik's cube. remember that? wasn't an economic narrative but it was a narrative and about the same amount it depends on the source so art laffer was a life changer then he came out with a book and a recording and was a celebrity

from that narrative and this is a nice part of the story the national museum of history in washington was developing a special exhibit on business history and somebody thought i wonder if we can get that napkin so this was many years later when his wife was alive can you search among his things were looking for a napkin with a drawing. she went through his things and lo and behold found the napkin with a diagram drawn on it so she called them back and said i have it. now you can see it was good to go to the museum today but i didn't have time. but on their website they are very proud of it but there's only one problem every quarter called art laffer and asked him about it and he said i

don't believe it. you did it he said my mother taught me never to write on things like a nice napkin in a fancy restaurant would you write on a cloth napkin? no good person would do that. strong narratives don't have to be true. [laughter] somebody got art laffer and dick cheney and donald rumsfeld together to reenact the very dinner but this had economic impact to help elect ronald reagan and before that

margaret thatcher she wasn't elected she was appointed by it was with english-language countries i looked it up in france it did get attention in france. [speaking french] did i say that right? they had a little epidemic in france but then they elected mitterrand which was the socialist president of france so the narratives have a patriotic element and of identity. you could define your life as a story of it as a patriotic american. you repeat stories of americans or close countries like australia.

so home prices. the other is the great depression. we are just coming out from the great recession named after the great depression is very much on her mind so starting with home prices a huge boom in home prices in the united states and also the uk and other english-speaking countries in the early 2000's so part of this around 2005 reaching the peak in 2006 and then faded away and we are living in the aftermath. what caused that? one thing now i can digitize

text and phrases to see how common they were i've been interested in this for a long time so my research goes back many years and i look for the term housing bubble. almost nobody said housing bubble in 2003 or 2002 but then it booms and then i get google searches so you can see a big spike in 2005 and 2006 everybody is searching for the term housing bubble so doing various digital searches flipping houses suddenly came up at that time typically it was used that you are playing into the housing bubble and then selling it a few months

later but flipping houses was highly profitable and there was just excitement if you can remember i used to listen to the cab driver would always come around to home prices would be in restaurants with my wife i would hear home prices it seemed like everybody was talking about it. but then they were embarrassed because they made a big mistake so there were lots of books written on how to flip houses and in the aftermath i think donald trump talks about it a little bit he wrote many motivational books and part of

it is how to make money in real estate so that helps to promote his career as well. the other one i want to talk about is the great depression there was a stock market crash 1929 and after that there was economic destruction until world war ii and that decade-long is a legend today because the legend of the great depression came back. i can tell you i did searches it came back in 2008 and we have named it the great recession everybody would say is this the great depression because people still remember the narrative it's like an

infectious disease that is the endemic and not bothering people so they are not concerned but then that there is a new variation of the disease or the narrative that comes back so we have a story. fdr in his inaugural address he explained that we have to worry about. the only thing we have to fear is fear itself. the great depression is confidence where we see people and think they are depressed

so then i go back it is a contagion theory it is one of them. so by the way i point out in the book franklin roosevelt it wasn't like calhoun maybe he said it. but it was the assistant in boston that said that. who is he cracks it's not just a good story now roosevelt said it and it's a good story. also i have to say gail professor irving kishor said it around the beginning of the depression so we like stories about celebrities that have that gravitas of the inauguration and then to hear

president roosevelt say that in his own words just search on youtube. you can see it he has more of a magisterial feature than the current president but he was a good speaker. [laughter] so another thing that's important there were other causes of the great depression and one of them was talked about a lot but we don't associate is that robots are coming to replace jobs and people will be permanently unemployed with these robots. wait a minute you talking about robots in 1930? you bet for go the term robot came from a play.

charlie chaplin had a nice movie about that called modern times. actually is a great movie it's about charlie chaplin who was working in a factory it was automated in the sense it had conveyor belts. he had to do the same task and it's really funny and it drove him crazy. but it's that story that was happening in the great depression was repeated many times in the great depression that this is the power age we have machines now was so much horsepower they outnumber humans 1000 to one.

how can people stay employed the other story in my book is the dialtone telephone. an old telephone you had to pick it up and it was a direct connection to the operator she would say number please and she was on the switchboard and would connect you then they came out with dial telephones it was called a robot because it was doing the job of the operator they installed those in the u.s. senate in the early 1930s and one senator got so angry and upset and had them torn out. it is a difference because

after the depression we came right back to full employment it wasn't a major technological change creating an army of unemployed but what contributed to that severity someone my mind we are at risk again because we are going through a resurgence of this narrative that we call the artificial intelligence for go we think we have never been stupid before or through this before but not going to try to answer for it will be a disaster but it hasn't been in the past but it has scared people in the past so it is a somewhat dangerous ins - - situation that we will be

revised in fears. so i will stop with that we can open for questions. >> had you mentioned identity economics and then you talk about the patriotism of the us and france and how those ideas became viral so how do you think those ideas will have a different epidemiological model quick. >> yes i should have mentioned

that book he is a georgetown university friend and we have written two books together so i should say this book is partly his inspiration he wrote identity economics. it emphasizes one have a sense of our own importance i just saw the harriet tubman movie that is coming out i recommend it about what it would be like to be a slave in the american south some of them were spirited and tried to get away but everyone has a hero story. but it explains economic

events and prejudice among women and the difficulties and to get accepted in the workplace because the men resisted and it challenges the story of their own weakness. >> i was just thinking of your identity to determine how that plays out under the contagion quick. >> people like their stories. i have an example in my book of the story of george washington and the cherry tree. anybody hear the story cracks. [laughter]

i have one person shaking his head no perk i will tell you the story. george washington actually read the earliest version of it he got a birthday present i'm sorry they never said birthday present he got a present of a small hatchet. so he went around looking for things to chop he damaged a prized cherry tree and potentially killed it and his father was furious he goes to george and says did you kill the cherry tree cracks george answers i cannot tell a lie. [laughter] why is that such a great story cracks because in 18 oh two

it's almost a firsthand account and got it from a woman who grew up with george washington i suspected it was true but why is it contagious? i don't know but that was his most successful so we have to become humanitarians in the economics apartments. >> i have two questions had you look at economics over time cracks.

>> my way to study narratives with cicero i found another wonderful essay in the second century who was a cynic and that's also an ancient word those skeptics at the time so there is an essay called the professor of public speaking in which he describes his advice. i won't make comparisons with people today but it sounds so familiar. but i think it was reality for those who were public speakers would try to engage the audience.

and engage them with their identity. and not worry too much and you say a professor would tell you this. you have to tell a good story and you have that book here to. [laughter] >> as an economist economist have become so mathematical do you foresee incorporating this into models quick. >> the appendix to the book is mathematics and don't want to scare you off. i'm sure it scares people off but don't read the appendix you can if you want to but the

standard keynesian model is based on the idea of the multiplier the way to get out of a recession is to raise government expenditures and that will create incomes would you hire people to do things with your money that creates income for them. and then yet for more people and then you start to stimulate the system with that deficit spending system that's all fine but to broaden the model that come from the epidemiologists that in for

those dynamics because that assumption is just the real money flow but it doesn't matter a lot with the president says as the chairman of the federal reserve these people have enormous influence with the stories that they tell make a huge difference. >> thank you for a wonderful book. and i to talk about the narrative all the time. and information and the values of the social command. and those others and those

values so my question is what is that value that is a very different object from epidemiological. >> this is a grand question. economists also talk about the people have one equilibrium for example the idea of bank failures but the banking system is a state of equilibrium i'm not trying to replace all of economics but

we have to make it more realistic what are the narratives cracks this is a diamond district. by going back to 1700 like the panic of 1893 i didn't see anything before 1750 anything on the stock market crash so i had the word bubble but it wasn't prominent until the 19th century. and with 1837 they didn't use the word panic is the panic of

1873 then panic of 1893 then panic of 19 oh seven. that's a refound of the federal reserve. which is the all-time financial panic and people believe that for a while. nobody talks about the panic of 1837 but 20 years later in more than 1873. what does a bank run cracks that happens when people start talking about those that are insolvent. if you meet someone on the street that says did you hear cracks?

or did you hear of northern rock? then there is a line in front of the bank to get the money out. you try to pull all your money out but nobody can withstand that they only have so much reserves on hand to pay out. have to call in the loans and that is a slow process. that can only happen if there is a narrative in a has to be fast enough to be contagion. we didn't completely forget about them and thought we had taken care of it.

and suddenly it became contagious again. and then to see mothers like them. but i want to add to these beliefs and what are their dynamics. >> you mentioned persistent narratives. and then to preferred the original story in their head. i am curious if in your research there is anything that comes up how they're not wired to seek that objective truth to perpetuate the society. >> yes. one thing that is

revolutionizing economics is that we are wired in our brains and i believe we are wired for a narrative. i associate in the book we are wired for songs as well. as a human universal anthropologist says every society has music and stories and fables. there is a famous experiment in the 19 fifties where a researcher put electrodes in the human brain. that might be considered unethical today. but i will tell you the results they had local anesthetic with a hole in their head and they were pushing an electrode around

and they found out in certain spots in the brain they would react and what are you reacting to and she would say i hear music that somebody put the radio on? and they discovered she could hear a song she knew well if they interrupted the electricity and do it again it starts over again from the beginning. so there is a sequence. so when you fire the electrode and then would say i'm thinking of a story. my mother is telling me this. that you have stories in your brain and your organized that

way. so a lot of songs have stories to them so when homer recited the iliad or the odyssey he sang it apparently so music and stories are intertwined into the human brain. thinking about economics or why art laugher did. one of the biggest regrets is not to call it the laffer curve. [laughter]

>> the laffer curve doesn't work so that is just as well. >> i am a physician so i learned epidemiology and it doesn't quite work that way. if something a physical thing causes an illness and the first epidemiological study. >> yes i know the story. >> but i was wonder with economics to make a scientific thing that it is not as easy to identify as a virus or bacteria.

for example always meeting our expectations with the idea was to break the back of inflation and then get out of people's minds would be more expensive economics can't be based just on math there is a human component. a lot of economics is based on the rational man theory. [laughter] but people are irrational it's hard to make a mathematical formula for that. >> people are often rational. our society works well because there are rational parameters

around it breakable you're also irrational. that's why a want to be more inclusive of different approaches. we cannot use a narrow model. >> thank you. >> i guess this is been around for a number of years but then the federal reserve controls the interest rates so what extent do they control them because of rumor quick. >> i wrote a paper in 1978 with fed interest rates and to have the fed funds rate which

is overnight but we are in a puzzle right now around one and a half percent so in real terms we have zero interest rate with 30 year bond rates why would you have somebody pay back less than you gave them cracks? so something odd the behavioral is going on with that inertia with the cost of doing business a different way. >> this is something i am working on the beginning of a research project. not just for me but they are noticing the data and starting

to pay attention to it but i don't have it all worked out yet. but interest rates are so low as an interesting thing to see the narratives playable in that. >> thank you. >> two more questions this feels obvious to me. i want to learn more how like word-of-mouth affect like the economic models or consumer modeling today.

i have an undergrad degree and actually this was a contextual analysis like chavez versus oil prices. of course she would build effects. >> in my prepared talks of all the social sciences it is the worst at incorporating a narrative. but listen to these other people and it's really not talked about. attempting the narrative it seems obvious to me with

university of michigan i talk about that and in a history course talking about narratives why don't you hear about this in my own department? >> so you are not even saying what it should be? it comes back to the federal reserve and their job is done. they will not say i heard from the taxi driver and people say this. and they don't have the confidence index of the late thirties so let's create a measure of confidence.

and the university of michigan. but the academic researchers and just don't like the sound of it. they do a little bit. it is there. it's a problem we have something called physics envy. [laughter] i myself wanted to be a physicist or mathematician. and those economist around

1900 it sows higher order decisions that involves intentions and secrets and just cannot be exact. think in coming decades that keynesian revolution that came along with the new data that we have been talking about those data sets for over 70 years. but now the young people are not so focused on gdp. the government doesn't collect sentiment data it just doesn't sound right. but it's out there and

collected by private people. >> i work in biotechnology with infectious diseases i spend my entire life looking at these epidemics. and with that interdisciplinary classes. i always annoyed my professors because i was more focused on practical applications and theories. i am a nerd. [laughter] i would love your practical recommendation how you delay or avoid the impending

recession we keep hearing and how do we use that as a tool quick. >>? >> i pitch this book as the beginning of 30 years of research. and bembenek he of 2007 and 2008 wrote a book about the great depression had real-world knowledge. we cannot let this narrative get going. so why do they immediately bail out cracks they must lead to collapse.

and was definitely motivated. it's not the core curriculum in the economics department. so at yale with a phd program we have comprehensive exams and they have to pass that or they flunk out. so i find myself teaching to them on a teach to graduate students because i want them to get through the exam. so talking about narratives doesn't sound right with all these mathematical models. that there is some value but we just have to move beyond.

and often with the changing his people's minds. thank you. [applause] . . . .