Panic Versus Confidence

The current pandemic is having serious impacts on jobs, businesses and general individual welfare. The book "Narrative Economics" by Robert Shiller provides an interesteing perspective on "How stories go viral and drive major economic events". The Covid19 pandemic is one such envent and so I thought that a couple of parragraphs from Chapter 10 might be of interest to many.

" Since the early nineteenth century a major class of narrative about confidence has influemce economic fluctauations : peoples confidence in banks, in busness, in one aother , and in te econimy. Economically, the most important stories are those about other people's confidence and efects to promote public confidence.

Among the earliest confidence narratives are those about banking panics - that is , whether we have confidence in the banks to make good on their promises. We mean not only public confidence in the morality of the bankers and bank regulators but also confidnce in banks' other customers, confidence  that they will not try to withdraw theirt money at once. Raymond Moley, one of President Framklin Roosevelt's "Brain Trust" experts during the great depression, put this idea into a simple narrative:

             A Depression is much like a run o a bank. It's a crisis of confidence. People panis and grad their money. Thiere's a story I like to tell : In my                     home town, when I was a boy , an Irishment came up from the quarry where he ws working and went to the bank and said "If my money's here              , I don't want it. If its not here, I want it"

This and other confidence nrratives help us understand major evets marking modern history. 

Several classes of confidence narratives have charaterized the history of the industrialized economic. 

The First Class is Financial Panic Narrative . 

This flects psychologically based stories about banking crises .

The Second Class is Business Panic Narrative

This attributes slow ecomonic activity not so much to financial crises as to a sort of general pessimism and unwillingness to expnd business or to hire.

The Third Class is a Consumer Confidence Narrative

This attributes slow sale to the fears of individual consumers, whose sudden lack of spending can bring about a recession. 

As narratives spread about the dangers of business losses and decreased consumer confidence, increasing self - censorship may, and sometimes does , encourage panic. Because people are aware that others self-sensor , they increasingly try to read between the lines of public pronoucements to determine the "truth"  (that has certainly been a trend in the current decade)

In summary this book is well worth a read as it gives an insight into the effects of narratives in general and economic in particular. 

Book Details:

"narrative economics"

By Robert J Shiller

ISBN 9780691182292

Published by Princeton University Press.

Copyright 2019 by Robert J Shiller.