Narrative Economics, Migration and Populism
Since time immemorial humans have told stories to make sense of the world around them – it is a quintessentially human trait. We think in story, we tell stories to ourselves and to others, and we communicate about what we think by using storytelling. Stories are so important that for an argument to be really cogent there must be a good story underpinning it. Francis Ford Coppola put it best: “With every great product comes a great story”. Stories inspire and motivate and then connect our values and needs to our behaviour and activities.
As a result, our brains are highly attuned to the influence of narratives, factual or not, in relation to our actions and decisions, including economic ones such as what to consume and where to invest. Since economic activity is the collective result of individual human decisions about what to buy and sell when and at what price, narratives play a major role in driving an economy. As a simple example, when business people pick up on stories about new measures or conditions susceptible to facilitate economic growth, they will be more willing to recruit, expand, and make capital investments.
Conversely, if they hear negative stories about the future that they think will constrain growth, they will do the opposite: downsize and defer investment. When a critical mass of people starts thinking the same way at the same time as the result of a compelling narrative that captures the collective imagination, conditions are ripe to trigger economic expansion or contraction, boom or bust…
By and large, the economic profession dislikes the power of narratives because storytelling runs against the tenets of classical economics. Stories— often a figment of our imagination and the product of our emotions—do not fit into quantitative models based upon the assumption that we are rational decision-makers with perfect information at our disposal and with stable preferences. Nothing could be further from the truth of course. The contention that we cannot think straight may be shocking, but it is based on observation and analysis, corroborated by thousands of academic experiments conducted in behavioural economics, psychology and neuroscience. The reality is this: reasonable-seeming individuals can make decisions that are totally irrational and at odds with their own best interests.
Robert Shiller – the Nobel laureate in economics who is Professor at Yale University – gave narrative economics some credence in his 2009 book “Animal Spirits – How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism”, followed by a famous article published in January 2017 (simply called “Narrative Economics”). In both he argues that narratives drive human behaviour and that “the human brain has always been highly tuned towards narratives to justify on-going actions.” One of his greatest contributions is to have demonstrated that narratives can “go viral” – spreading far and wide and often accompanied by profound sociopolitical and economic changes.
The same epidemic models that trace how disease or viruses spread, can be used to describe the word-of-mouth transmission of an idea. Stories spread ideas like a contagion – infecting one person and another, and then another. It happened during the Depression in 1920–21, the Great Depression of the 1930s, the Great Recession of 2007–9 and it is happening again today with the explosion of popular and successful narratives around identity, migration and economic retrenchment. In Shiller’s opinion, the economic profession’s inability to take into account the way in which narratives influence behaviour explains its massive failure to predict populist actions like Brexit. “We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature,” he wrote in the book, adding: while economists take comfort in their quantitative facts and models, “the confidence of a nation – or any large group – tends to revolve around stories.”
Today stories about migration epitomize the potency of narratives, and highlight the fact that they do not have to be factual or based on hard evidence to gain traction and spread. The emergence of right-wing populism in western countries as different as Hungary, the US, Italy, Poland or the UK is a defining feature of our time. It is predicated upon the notion that migration is necessarily bad and entails negative implications in terms of trade and other economic policies that will constrain future economic growth and social welfare. Over the past few years, storytelling about migration has dramatically shifted. In Europe in particular, immigration, once seen as enriching western societies, is now considered a cause of distress and a source of malaise.
This should not be so, as measured by the actual numbers of refugees and irregular migrants who arrived this year in the EU, there is no crisis. However, measured by the impact on European politics and economic policy-making, it is a serious issue that shows no sign of abating and that might shape policy for years to come.
According to the U.N. High Commissioner for Refugees (UNHCR), there are 68.5m forcibly displaced people in the world, of whom 25.4m are refugees. The burden of caring for refugees weighs most heavily on Iran, Jordan, Lebanon and Turkey much more so than on the European Union (EU). Jordan, for example, has 89 refugees for every 1,000 inhabitants. By contrast, if the EU were to receive 100,000 refugees and migrants this year (there were 60,000 in August), that would represent about just one person for every 5,000 inhabitants (so Jordan has almost 450 times more refugees than the EU). This tiny percentage would seem manageable and the issue almost irrelevant, but 38% of EU citizens now regard immigration as “the most important issue” facing the bloc (according to the Eurobarometer survey released in June 2018).
This is the unique power of narratives: they do not have to be ‘true’. Convictions and opinions can be inspired by myths or misconceptions conveyed by narratives which then fuel our imagination and sometimes ‘go viral’, spreading across entire segments of society, with an economic impact. There are multiple counter-factual narratives built upon the tale that countries (or regions, or cities) ‘can’t afford to have migrants’, while social media is awash with stories that migrants ‘take our jobs’. This is factually and empirically wrong: multiple economic studies have shown that migrants are not a ‘cost’ or an economic burden, but the opposite: welcoming immigrants tends to make an economy better off. Yet this will not dispel the attractiveness of counter-factual narratives: facts do not change our minds. Narratives on migration are bound by myths and cultural realities, not hard-core economic research backed by data. When hearing positive arguments about the benefits of migration, populists will turn to ‘confirmation bias’ – the tendency we all have to embrace information that supports our beliefs and reject information that contradicts them.
Now that every major economic, social and political discourse is coloured by identity and that narratives on openness and migration feed a discourse of unbridgeable divisions, what can be done? To an extent, narrative economics supported by AI can help. Standard economics has largely failed as a predictive tool because it omits the role of narratives in policy and decision-making, in assigning social roles and identities, in defining power relations, and in establishing and conveying social norms. By better interpreting narratives, policy-makers and business leaders alike would be better positioned to understand what’s really going on and the societal issues that animate their constituents, clients and customers and thus to make the appropriate decisions.
‘Narrative extraction’ – particularly relevant in today’s world dominated by ‘fake news’ and the manipulation of social media – is the first step to do this. The relationship between ‘imagined futures’ and narrative are recurrent, important themes. In a previous article, Paul Ormerod has shown how new algorithms supported by AI take account not just of individual words, but also of the context in which they appear. These algorithms learn the overall sentiment of any given piece of text. They are also able to identify topics and themes, especially when used in conjunction with specialist human expertise.
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