Financial narratives

by Rob Horning

14 October 2007


I spent a lot of years studying literature, and though it frequently seemed like I was pursuing vanity degrees that would have no use in the “real world,” I tried to put a brave face on it, telling myself and anyone who would listen that the study of the functioning of narratives culturally is integral to understanding the course of that society; that manipulation of those narratives can dictate the course of history; that the values individuals subscribe to can often be traced to narratives that have cultural currency. So it’s gratifying to see an piece like this one in today’s NYT, by Robert Shiller, of Irrational Exuberance fame, that confirms my rationalizations.

Consumer confidence indexes have not yet fallen as they did at the onset of the last two recessions. But confidence is a delicate psychological state, not easily quantified. It is related to the stories that people are talking about at the moment, narratives that put emotional color into otherwise dry economic statistics….
It is clear that salient, emotion-arousing narratives — those that capture the popular imagination and damage public confidence — are central to the etiology of recessions. As these stories gain currency, they impel people to curtail their spending, both in business and their personal lives.

Narratives that render the economic data comprehensible at an emotional level are clearly significant, but Shiller might have been more specific than to attribute those narratives to what “people” are saying. The business press mainly exists to fashion those narratives, and many of them take that responsibility to heart and continually cheerlead for the economy, trying to implant confidence-building stories about the current situation in the general public. Unlike daily market roundups, whose main subterfuge is to confidently present explanations of why markets moved in this direction or that (see the epic account of day trading maestro Victor Niederhoffer in this week’s New Yorker for a look at how much more sophisticated this kind of interpretation can become), I’m thinking instead of BusinessWeek‘s “Business Outlook” section, the weekly roundup of the market’s performance and its interpretation of new data for various indicators. This column is perpetually optimistic, finding the bright side to any grim piece of economic news and promising recovery or further growth or bigger profits or higher stock prices around every corner. It’s a testament to how slippery data is, and how many different factors and figures can plausibly be evoked in providing a picture of the economy—the sunshine gang at BusinessWeek can simply keep digging around until they find some indicators or some time frames to contextualize numbers and spin them positively. In reality, the economy has far too many moving parts to accurately describe the interaction of all of them; this opens the window to ideological interpretations of carefully selected partial accounts of the total situation. At stake in these narratives usually is the eventual level of state intervention in the economy, though other messages are often embedded: hard work pays; only greedy speculators disrupt the operation of markets; growth is benevolent and leaves no one behind; containing labor costs (i.e. wages) ultimately benefits everyone; freedom is best understood as purchasing power and entrepreneurial opportunity, etc.

If the business press is there to cheerlead for market forces’ benevolence, and sustain investors’ confidence, how does the recession narrative get started and catch on? It may be a matter of data too discouraging to ignore, though just a look at how the National Association of Realtors’ economists spun away the problems in the housing market for so long is enough to make that premise seem questionable. They may not get started until after the fact, when they can be comfortably cast in the past tense, which may be why recessions are often not identified until well after the fact, as Shiller notes. And the business press ultimately has to represent conditions realistically in order that those who consume the information can profit. There’s still money to be made in a recession, after all.

Recessions, according to Shiller, hinge in part on consumer confidence, and a force more significant than the business press in sustaining consumer confidence is the advertising industry, which is always touting the benefits of consumption in increasingly intrusive ways. And these messages become self-reinforcing; once we accept their basic truth, we may at some level yearn to see them reiterated, which makes us more attentive to ads and the fantasies they enact. A study of the appeal of fiction—studying literature—can perhaps be useful in understanding how ads design their own fantasies and make them efficacious. The vicarious pleasures experienced in consuming experiences supplied by the media may translate into a faith in shopping to provide similar joys, reinforcing the identities people want to construct for themselves. And our sense of confidence then rests in how effectively we can make those identities from things we buy and consume rather than other sorts of prospects—that our identity stems primarily from being consumers makes sustaining consumer confidence something of a cinch.

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