The Register Citizen (Torrington, CT)
Shiller: Recession stories could hurt Trump
We’re hearing stories and predictions of a possible recession coming as soon as early or mid2020.
Most of us tend to think all this talk is separate from the underlying reality of business and economic conditions that will or will not send the U.S. into a tailspin. Not Robert Shiller, the Nobel Prizewinning economist at Yale.
For Shiller, the likelihood of a recession coming before the presidential election in 2020 — which he pegs at 5050 — is affected by the stories and tales about the trade war, about artificial intelligence replacing people’s jobs and other pressure points.
And if it does happen, a recession would kill President Donald Trump’s chances of winning reelection, Shiller said — not because people’s lives would be so much worse, but simply because a caving of the economy would refute Trump’s narrative about himself.
“It won’t be a surprise if it happens,” Shiller said at a Hartford appearance sponsored by the World Affairs Council of Connecticut Wednesday night, which I moderated.
The economic expansion, which started in mid2009, is already the longest on record, so it has to end sooner or later. That’s part of the lore of economic cycles.
“The real question is, is it going to be happening soon enough that it will embarrass Donald Trump, who speaks as if he’s infallible, in fact he even says that,” Shiller said at the 90minute discussion at the Mark Twain House. “I think if we have a recession before the election in 2020, he would not win because it would be too much of an embarrassment.”
Shiller spoke a lot about Trump as a master storyteller whom he dislikes but respects. Trump is a prime example of the forces he describes in his new book, “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.”
He sees Trump’s powerful narratives about fake news and global enemies as dangerous, he even drew a comparison to the 192833 rise of the Nazi party in Germany, which used fake news accusations and the infallibility of its own policies as a strategy.
“I see somebody saying that today too. That’s why I think that a recession coming before 2020 would actually be good news if it isn’t too bad,” Shiller said, in a sentiment many Democrats share but are unwilling to say publicly.
The common bond is viral stories, true or not, that reflect and support our fears, or anger, our need to compare ourselves with others, our zeal to get rich, our confusion about world events. In the book, Shiller talks, for example, about the power of narratives in the rise of bitcoin, the electronic currency not tied to any nation.
“Young people, they’re living in a world that seems to be racing ahead in modern technology, and they don’t know what their role is in this future,” he said Wednesday. “They feel left out and they hear stories about someone making money trading bitcoin so they want to try it.”
While we in the news business use narratives as our basic tool, economists have been slow to recognize the power of stories to shape the world, Shiller says — to their detriment. Recessions, for example, are very much driven by the behavior of consumers, investors and business executives — which, in turn, are driven by stories, in Shiller’s view, just as they are driven by fundamentals such as corporate profits and rising or falling incomes.
The book logically follows other works by Shiller, notably “Irrational Exuberance,” about how financial markets don’t necessarily follow predictable patterns based on fundamentals.
These days, Shiller’s lifetime of seeing economic events as the result of messy human behavior is a much hotter topic, well timed to the 2020 elections and the trade war with China that Trump has launched with the steadfast support of people who are, for now at least, hurt by it.
“He says it will bring prosperity and will save the industrial base of this country. They believe it for now, but that could change,” Shiller said.
Narratives about trade wars affecting the economy started in the Great Depression with the SmootHawley tariffs of 1931, which were later blamed for making the economy worse, Shiller said. “It still colors our thinking.”
Much of his thinking about economic narratives stems from the Great Depression — perhaps because that’s when radio and telephones became widespread enough to send stories viral more easily, or perhaps because so many events came together at once.
Another subject of viral narratives is the inverted yield curve, a technical market term that describes when interest rates on longterm Treasury notes are actually lower than shortterm debt. That indicates a lack of confidence in the economy and is said to be a harbinger of recession.
Shiller believes stories about the inverted yield curve threshold — an artificial measure that may or may not signify anything — are critical. And we’re seeing more of it these days, as we saw inversions starting this summer.
“It seems to me that it might be a sort of amplification, a selffulfilling prophecy. It always happens because we think it will happen,” he said.
This time around, whenever a recession hits, it could be a bad one in part because of the rise of narratives around people losing their jobs to artificial intelligence and other forms of automation — a universal fear stretching back to ancient Greece, but growing in intensity lately.
“I’m thinking that if we have a major recession, that it might be blamed on that,” Shiller said.
And of course, Trump will take a lot of blame in part because of the trade war. “It is contributing to a diminution of economic activity,” Shiller said.
Trump, like any politician, will try to deflect blame.
“We’ll see what he comes up with,” Shiller said. “He’s a genius at narratives, he might think of something.”