Earlier this year, Paul from Asset-Based Life launched an online book club of personal finance and investing bloggers. I may have won Paul’s stock-picking contest in 2019, but I am not shaping up to be the book club’s most popular member, as you’re about to find out. So far, in addition to Paul, the book club also features Nelson from Canadian Dividend Investing, and Odysseus from Odyssey to Fire.
Today, we have Paul, Nelson and myself taking a look at Robert Shiller’s Narrative Economics. You may know Shiller from Irrational Exuberance — his 2000 book predicting a stock market collapse that came out just weeks before the dot-com bubble imploded.
In any case, the Nobel Prize winner is back with his latest effort. This one intends to chart the effect of story-telling and narratives on economic history and how it shapes business, particularly during crises. With 2020 being one bizarre fiasco after another, what better time would there have been for a book teaching us about financial panics and our herd-like tendencies? As it turns out, pandemic or no pandemic, there was no good time for this book…
The Review
Has my opinion of Ian gone up or down after he recommended this book?
Ian: [Editor’s Note: This spot deliberately left blank]
Paul: I’d say it’s edged up a bit. Not because he recommended a good book, ‘cause he didn’t. But he made a bold choice, and I salute that. We’ve trifled with some lighter fare in the book club so far, and it was time for us to put on our big boy pants and tackle a weightier tome. Plus recommending an interesting title by a Nobel Laureate is a great decision; its actual shortcomings are all on Shiller.
Nelson: I quite like Ian. I always thought his stock analysis was bang on and I would go out of my way to read his work over the years. We would chat about all sorts of stuff and I always enjoyed it. I thought he was a scholar and a gentleman.
And then he recommended this book. Suddenly my opinion of him is only slightly better than I feel about Hitler and Satan. I wished harm upon everyone he holds dear every minute I had to slog through whatever this stupid book is called.
The point where I knew this was going to be a good or bad book was…
Ian: Around halfway through the book, when I really started to wonder when we’d been done with the historical lessons and start applying the concept to the world going forward. The author never really got around to this though. If Narrative Economics were marketed as a collection of historical vignettes, that would have been accurate. However, I also wouldn’t have bought it, so ¯\_(ツ)_/¯
Shiller’s previous book was about “The Economics of Manipulation and Deception” and I indeed got deceived by this book that had scant little to do with its supposed topic. Score one for Shiller.
Nelson: I really wanted to like this book. The whole premise is about how important narratives are in the business world, and how certain ideas need a tipping point before they’re accepted as mainstream. I’ve long thought investors care too much about the quantitative features of a stock or bond when they should be worried about the investment’s ability to go viral. That’s what leads to outsized returns, not complicated analysis that only 17 people will ever read from beginning to end.
Instead we got a book where all Shiller did was point out 42 different examples of how certain
financial trends went viral. Thanks, Rob. I got the point after example four.
Paul: It took a while, but I finally realized this book wasn’t going to be so great in Chapter 8. I had tolerated the (lengthy and tedious) setup to that point, and I was ready to get into some really meaty narratives. Then we dove into an extremely detailed and terribly uninteresting discussion of the origins of the “Happy Birthday to You” song. Yeah.
There’s a small part of my brain that sits dormant for most books, and it only wakes up when real trouble strikes (like major plot holes in fiction). It jumped out of bed and yelled, “Be careful! This book may suck. P.S. That birthday song doesn’t have anything to do with narrative economics.” There were definitely some good parts later in the book, but its warning was indeed prophetic.
What did I like about the book?
Ian: I think I enjoyed many of the stories more than the other members of our book club. But I have an economics degree and geek out over financial history. Shiller wrote the majority of this book aiming at a pretty small audience, and even then, much of it missed the mark.
Nelson: The best part was when I put it down forever after finishing about 15% of it. Life is too short to finish even mediocre books, kids. And this pile of filth wishes it belonged to the mediocre club.
Paul: As a history text, this was an informative and interesting book. I really enjoyed hearing more on the historical economic events I knew only in passing. I also enjoyed how it linked related events across time.
What did I dislike about this book?
Ian: There’s a great concept here that should have been explored. I’d still be keen on reading an actual book showing how story-based frameworks of the world imperceptibly drive human behavior, and how these recurring narratives can be used to help forecast the future. However, Narrative Economics isn’t it.
Nelson: Oh man. Where do I even start? I’ll sum it up like this: I think there are way, way too many 30,000 word books that should really be 2,000 word blog posts. This book was the epitome of that problem for me. Like I said earlier, I was out about 15% of the way in. Does it get better? Damned if I know. You’ll have to ask one of the other reviewers who actually finished the thing.
Paul: This book said it’d provide “a new way to think about how popular stories help drive economic events.” In a very literal sense, I guess it did do that. It said they might, or they might not, or they might sometimes, or they might need to mutate once or twice and then maybe they might.
There were too many subjects (several of them real reaches) and too much analysis with almost no conclusions. The main lesson I got was, “It’s complicated.” I agree with Shiller that this is a fascinating subject and deserves more research. It’d be great if someone found something truly meaningful to say and then wrote a tight and interesting book about it.
This book was better than (blank) but worse than (blank)
Ian: This book was far worse than any of Shiller’s other books (hence me being so disappointed in this volume in his otherwise agreeable catalog).
This book was better than Paul Krugman’s The Return of Depression Economics. In the collection of pop economic books, you can rarely do worse than Krugman, and that one was Krugman at his absolute nadir.
Nelson: This book was better than being repeatedly kicked in the groin by someone wearing steel-toed boots, but only marginally.
This book is far worse than Robert Shiller’s office at Yale, which I assume is quite nice. It’s also much worse than his salary, which apparently approaches $500k per year. Who says academia can’t be lucrative?
Paul: This book was better than most pure economics textbooks I’ve read. I know – low bar.
It was worse than Gladwell’s The Tipping Point, which explored a similar concept on a much smaller scale. The Tipping Point tried to do less and ended up doing more. Gladwell was also less afraid to draw actual conclusions, even if many of them ended up being wrong.
Was reading this book a good use of my time?
Ian: I mean it was during the quarantine so my options were pretty limited, but even so, no, not really.
Nelson: I quickly gave up this book to read something better (The Prize by Daniel Yergin if y’all are wondering), so it wasn’t all bad. I’ll never forgive Ian, though. He’s worse at recommending books than Oprah.
Paul: Probably not. Overall this was an easy read, but I don’t think I got much out of it. And there were some parts (like Chapter 12’s riveting discussion of the gold standard versus bimetalism) where I’d like those minutes of my life back.
What value will this book have for me, long-term?
Ian: It’s taking up 3,081 kilobytes of space on my Kindle, at least for the time being.
Nelson: [Editor’s note: Shockingly, Nelson didn’t answer this question. However, he was likely too busy writing his latest post on Melcor REIT. That post discredited the Melcor bear case as “old news” (a narrative that has become passé) and uses emotionally charged language to help enhance the stickiness of the subsequent rebuttal. Nelson then throws in a personal anecdote (his time driving by Melcor’s assets) to offer his own spin on the classic turnaround story structure, helping his particular remix of the tried-and-true conceptual frame to go viral.]
Paul: Pretty much zero, unless I ever have a trivia question on the origin of the word “boycott.” Then I’m golden.
What is a take-away message/quote from the book?
Ian: I’m better at picking stocks than I am book club entries.
Paul: I’ve got two. I really liked: “Ultimately, a story’s contagion rate is unaffected by its underlying truth.” Though I didn’t need to read 500+ pages for that; a fortune cookie would have sufficed.
And this sums up the book (the specific subject doesn’t matter): “It is difficult to know which came first, the chicken or the egg…The likely answer is, a little of both.” Way to take a stand, Dr. Shiller!