The Economist Who Wants to Ditch Math

Nobel laureate Robert Shiller argues that gossip, half-baked philosophy, and fake news drive economics — not only numbers. His peers aren’t exactly thrilled.

Robert Shiller attends the 2019 Forbes 30 Under 30 Summit on October 29, 2019 in Detroit, Michigan. Photo: Taylor Hill/Getty

Two decades ago, before the dotcom bust, economist Robert Shiller told peers that the stock market was vastly overpriced. A few years later, before the financial crash, he warned that housing was fated for a massive correction, too. Now the rabble-rousing, Nobel laureate professor has a new message for them:

Put down your calculators. It’s time to listen.

And what will his fellow economists hear when they do? An epidemic of chatter, says Shiller — stories told and retold at home, on social media, at workplaces, and just about everywhere else people gather. The skinny may be about new money pouring into Bitcoin, or the Chinese trade deal really about to happen this time. Before long, collective mobs of people will be moving their money around, sending the Dow to new highs.

In short, after four decades of a religious-like fixation with mathematics, mainstream economists may learn that the gossip, whispers, half-baked philosophy and “news tips” passed human to human since cave days drive economics. True, fake, it hasn’t mattered — such talk has spread and commanded surprising influence over economies. Shiller regards this as no small matter. In a new book, he argues for a profession-wide, decades-long study of viral stories as a path to much-needed improvement in utterly flawed economic forecasting.

“The standard statistical analyses are no longer valid. They assume that we know the probabilities with which everything will occur. In reality, we are almost never in that position.”

To say that the field has been cool to Shiller’s latest big idea is to insult the walk-in freezer. For almost three years, Shiller has laid out his thinking in speeches and papers, including to some 900 of the world’s leading economists at the 2017 meeting of the American Economic Association (of which he was president at the time). At such speeches, there has been polite applause. But outside, normally voluble economists have treated “narrative economics,” as Shiller calls his theory, as though it doesn’t exist, and most of those I contacted for this story either did not respond or said they didn’t know enough to comment.

A well-connected “Chicago school” economist told me this would happen. “I think it will be hard for you to get anyone on the record against this for several reasons,” this person said in an email. “(i) We are indeed storytelling creatures and there’s wisdom in what Shiller says. (ii) He’s a nice guy and why pick a fight? (iii) Any skeptical quote would sound foolish and narrow-minded. ‘Economist X at U of Y says, “I’m ignoring narrative economics because it’s not in my toolkit.’” I see Economist X’s point, but the internet would make mincemeat of him.” For those very reasons, this economist also declined to be named. “Stories are important,” he said, “but what makes them economics?”

Shiller has an aw-shucks laugh, a slight hesitation, a shock of big hair, and, at 73, a still-boyish grin. All together, the picture is disarming — and misleading. Shiller, who teaches at Yale, is not lacking in Type A assurance and ends up talking a lot because he is a reflexive contrarian — he himself says he agrees with almost no argument he hears. But he may also be the world’s politest practitioner of Nobel-level economics, serving up his sometimes-cutting quibbles with such quiet, smiling courtliness that it’s hard to be offended.

When I told him that the anonymous peer quoted above had questioned whether he was describing real economics, he became Robert Shiller testy. “I don’t care what you call it. Is it right?” he said. He paused, repeated himself, and if he had stomped his foot, he would have surprised no one. Then he said, more softly, “It is still relevant to study scarcity and the allocation of resources. But you can’t separate out a ‘pure’ economics. It’s not like we should do patriotic economics.”

Coming from Shiller, Narrative Economics, his highly readable, compelling book, is a broadside against the Chicago school, the mainstream, rigorously math-based philosophy that has dominated capitalism since the 1980s. Pioneered by Milton Friedman, the Chicago school tells us not to second-guess the market — humanity, disciples argue, is made up of rational, self-interested individuals whose systematic actions fully explain the larger economy. Governments should stand back and let the science of economics get on with its thing.