In a new book, Robert Shiller says it matters which kinds of narratives are contagious, and why
, or thinks they know, the story of the Wall Street shoeshine boy. In 1929 Joseph Kennedy, patriarch of the Boston-Irish political clan, had an epiphany while his shoes were being cleaned. When the boy who shined his shoes offered him stock tips, he realised the stockmarket was about to implode. Kennedy promptly sold all his shares and took a short position, betting that the market would fall. When it crashed that October he made a killing.
To wield such influence, economic narratives must first become popular. Epidemiology offers a model for how they take hold. Disease epidemics are hump-shaped when plotted on a graph. In the rising phase, the rate of increase of newly infected people is faster than the recovery rate plus the death rate. When the recovery rate exceeds the contagion rate, the epidemic falls off. It is the same with stories.
Some of the most contagious narratives are newer, more resistant variants of old ones. Behind every property boom is a mutation of the eternal narrative about the scarcity value of land. “Who could think of tilling or being contented with a hundred acres of land, when thousands of acres in the broad west were waiting for occupants,” says a tract documenting the follies of America’s land boom of the 1830s.
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