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wonderpup

The Role Of Narrative In Economics

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I read an interesting article recently on the reasons for the recent meltdown in China and the gist of it was that the trigger was not a specific set of metrics but a breaching of the narrative that the the Chinese authorities were omnipotent in their ability to control their economy.

The authors contention was that until a new narrative could be agreed upon-perhaps the 'rebalancing' story- the current lack of confidence would persist.

It's an interesting perspective if only because it contrasts so starkly with the scientific pretentions of the current economics elite who have tried to assert that markets are at all times driven by rational expectations based on sound data. So the idea that the real mover of markets is more akin to a soap opera like consensus regarding the current 'storyline' is fairly radical stuff.

The most interesting part is that the narrative need not be true to have an effect- what matters is everyone believes that everyone believes that the narrative is the correct narrative- so it's the consensus as to the current state of the story that counts, not it's actual veracity.

What this suggests is that the bankers should sack all those fancy analysts and instead employ experts in narrative fiction- but perhaps I misjudge them here- could it be that the true role of the ecosystem of 'experts' that surround the banking giants is precisely to manufacture the narrative fictions their clients demand?

It might explain why there was not a mass culling of 'experts' in the financial sector following the 2008 debacle- because it was not for their prognostic skills these people were employed, rather is was for their ability to weave vivid and convincing narratives from the raw stuff of economic data.

Come to think of it, if you watch Bloomberg on any given day what do you actually see? You see a succession of story tellers, who appear on set and for a short while tell a little tale about the reasons for this or that and what the various protagonists are doing or attempting to do.

It's kind of strange to think that more important that any actual real world metric is the narrative structure in which that metric appears- the more convincing the storyline the more people will buy into it. Truth in this case is not stranger than fiction but subservient to it.

It may well be that the ability of the Chinese state to control it's economy with authoritarian precision was always a fiction- but while that fiction held sway it was enormously influential on the behavior of 'the markets'- which tells us that the role of narrative in global economics is very important indeed.

It's ironic that a realm that so desperately wants to present itself as the last word in hard headed rationality is in fact a hotbed of competing narrative tales in which the outcome of events is driven less by cold hard facts than on the ability of various actors to present the most compelling storyline as to what is taking place and why.

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I have a saved quote by Bill Bonner from many years back, when I still used to read him.

Only simple ideas can be held by large groups of people. Commonly held ideas are always dumbed down until they are practically lies, often dangerous ones.

Property prices only ever go up...

Governments and central bankers really do know what they’re doing...

You can borrow yourself rich...buying things you don’t need with money you don’t have...

And once the mass of people comes to believe one of these lies, they adjust their behaviour to get into sync with it. Thereby they change the world, and the world then no longer resembles the one that gave rise to the original insight.

Soon, the situation is so at odds with reality that a crisis develops. The individual person must seek a new metaphor to help make things clear.

It really resonated with me.

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I mentioned this guy recently elsewhere.

http://www.ted.com/talks/yuval_noah_harari_what_explains_the_rise_of_humans

He suggests the success of humankind is due to our ability to believe myths.

Thanks for the link.

Short but interesting talk. Points out that money is the most successful myth of all time and was interesting at the end when he noted class change and how most of the worker class are becoming more or less useless!

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Joseph Campbell's 'Hero with a Thousand Faces' pointed out how the greatest myths from pre-history share a common structure: A man walks out, encounters supernatural wonders and terrifying ordeals, conquers them or is transformed by them, then returns with a great gift to bestow on the rest of the tribe. Everything from the story of Prometheus to the myth of Christ follows the same pattern.

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Short but interesting talk. Points out that money is the most successful myth of all time and was interesting at the end when he noted class change and how most of the worker class are becoming more or less useless!

His use of the word 'useless' itself references another myth of sorts, which is the idea that human beings must justify their existence in terms of their utility value- and in this myth to be 'useless' is the same as being worthless- an attitude that can often be clearly detected in discussions about the unemployed.

So if his future vision of a huge class of redundant people is correct we shall have a confrontation between two opposing myths- the myth of 'human rights'- the idea that human beings have some intrinsic value and the myth of 'utility value' in which humans have a worth that is a function of their utility to the group as a whole.

Much may turn on the question; does a 'useless' human being still retain his 'human rights'?

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His use of the word 'useless' itself references another myth of sorts, which is the idea that human beings must justify their existence in terms of their utility value- and in this myth to be 'useless' is the same as being worthless- an attitude that can often be clearly detected in discussions about the unemployed.

Agree and something that really annoys me about the mainstream press.

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