Robert J. Shiller: A Metaphor for Obama

NEW HAVEN – As US President Barack Obama begins his second term, he needs a simple way to express his vision and policies for the economy – a metaphor around which support for his policies might crystallize, thereby boosting his administration’s political effectiveness. So, what makes a successful metaphor work?

The 2008 Obama campaign used the slogan “Change we can believe in.” But “change” is not a metaphor for a new government: it does not stand for any policies. Nor does “Hope” or “Yes we can!”

The 2012 Obama campaign used the one-word slogan “Forward!” Once again, it signifies nothing about policies or their underlying philosophy. Every politician, whether liberal or conservative, wants to move forward, not backward.

Obama’s slogans are examples of “dead metaphors”: they are not part of an overall conceptual scheme.

By contrast, in the 1930’s, President Franklin Roosevelt used a metaphor that remains very much alive today. The idea of a “new deal” was conceived during his first presidential election campaign in 1932, though at the time he was still very vague about what the term stood for.

Apparently, Roosevelt, or his speechwriters, borrowed it from A New Deal, a book by Stuart Chase that was published in 1932 and adapted the same year into a cover story for the magazine The New Republic. Chase described his new deal in general terms as “the drastic and progressive revision of the economic structure, avoiding an utter break with the past.” And, while the book’s specific policy proposals bear little resemblance to Roosevelt’s subsequent actions, the title had an intrinsic appeal that he must have recognized.

The New Deal created an image of a commercial transaction, like the buyout of a company or an incentive package for executives – something that contracting parties bargain over and agree to. It is not imposed. By calling it a “deal,” Roosevelt made clear that the plan was not anti-business: it sounded like an offer to work, to participate, to seize an opportunity. And, because deals can be good or bad, fair or exploitative, the word “new” provided metaphoric depth, suggesting that Roosevelt’s deal was better, fairer, and more attractive.

The metaphor, overwhelmingly endorsed by voters, stood for Roosevelt’s mandate to fix the ailing economy along lines that were innovative but still essentially capitalist. Some of his administration’s initiatives, such as the creation of the Securities and Exchange Commission, seemed anti-business to some at the time, but have long since been accepted as a boon to competition and dynamism by hemming in unfair or manipulative behavior.

Metaphors, it turns out, are not just words. Modern neuroscience is revealing that metaphors are intrinsic to creativity, for their use activates diverse regions of the brain associated with their multiple meanings. Good metaphors are those that set off the right intuitive connections in our brains. For example, much progress in understanding sound and light resulted when scientists imagined them in terms of sea waves.

Formulating a good metaphor for Obama’s second term is itself a task for intuitive creative thought that entails rethinking what he will propose in his second term. A good metaphor might embody the idea of an “inclusive economy.” The word “inclusive” resonates strongly: Americans do not want more government per se; rather, they want the government to get more people involved in the market economy. Opinion polls show that, above all, what Americans want are jobs – the beginning of inclusion.

The parallel to Chase’s book today is the 2012 bestseller Why Nations Fail by the economist Daron Acemoglu and the political scientist James Robinson. Acemoglu and Robinson argue that in the broad sweep of history, political orders that include everyone in the economic process are more likely to succeed in the long term.

The time seems ripe for that idea, and it fits with the triumph of inclusiveness symbolized by Obama himself. But another step in metaphor-building is needed to encapsulate the idea of economic inclusion.

The biggest successes of Obama’s first term concerned economic inclusion. The Affordable Care Act (“Obamacare”) is providing more people with access to health care – and bringing more people to privately-issued insurance – than ever before in the United States. The Dodd-Frank financial reforms created the Consumer Financial Protection Bureau, so that privately issued financial products would serve the public better, and created incentives for derivatives to be traded on public markets. And he signed the JOBS Act, proposed by his Republican opponents, which aims to create crowdfunding Web sites that allow small investors to participate in start-up ventures.

We have not reached the pinnacle of economic inclusion. There are hundreds of other possibilities, including improved investor education and financial advice, more flexible mortgages, better kinds of securitization, more insurance for a broader array of life’s risks, and better management of career risks. Much more progress toward comprehensive public futures and derivatives markets would help, as would policies to encourage the emerging world to participate more in the US economy. (Indeed, the inclusion metaphor is essentially global in spirit; had Obama used it in the past, his economic policies might have been less protectionist.)

The right metaphor would spin some of these ideas, or others like them, into a vision for America’s future that, like the New Deal, would gain coherence as it is transformed into reality. On January 29, Obama will give the first State of the Union address of his new term. He should be thinking about how to express – vividly and compellingly – the principles that have guided his choices so far, and that set a path for America’s future.


Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the second edition of which predicted the coming collapse of the real-estate bubble, and, most recently, Finance and the Good Society.

Robert J. Shiller: A Man Without a Plan

NEW HAVEN – During the United States’ recent presidential election campaign, public-opinion polls consistently showed that the economy – and especially unemployment – was voters’ number one concern. The Republican challenger, Mitt Romney, sought to capitalize on the issue, asserting: “The president’s plans haven’t worked – he doesn’t have a plan to get the economy going.”

Nonetheless, Barack Obama was reelected. The outcome may reflect the economy’s slight improvement at election time (as happened when Franklin Roosevelt defeated the Republican Alf Landon in 1936, despite the continuing Great Depression). But Obama’s victory might also be a testament to most US voters’ basic sense of economic reality.
Economic theory does not provide an unambiguous prescription for policymakers. Professional opinion in macroeconomics is, as always, in disarray. Because controlled experiments to test policy prescriptions are impossible, we will never have a definitive test of macroeconomic measures.

Romney had no miracle cure, either, but he attempted to tap into voters’ wishful-thinking bias, by promising to reduce the size of the government and cut marginal tax rates. That would work if it were true that the best way to ensure economic recovery were to leave more money on the table for individuals. But the electorate did not succumb to wishful thinking.
The idea that Obama lacks a plan is right in a sense: nothing he has proposed has been big enough to boost the US economy’s painfully slow recovery from the 2007-9 recession, nor to insulate it from shocks coming from Europe and from weakening growth in the rest of the world.

What Obama does have is a history of bringing in capable economic advisers. Is there anything more, really, that one can ask of a president?

And yet US presidential campaigns generally neglect discussion of advisers or intellectual influences. Although a president’s advisers may change, one would think that candidates would acknowledge them, if only to suggest where their own ideas come from; after all, realistically what they are selling is their ability to judge and manage expertise, not their own ability as economists. This time, too, however, there was no mention by name of any deep economic thinker, or of any specific economic model.

Obama originally had a wonder team of economic advisers, including Lawrence Summers, Christina Romer, Austan Goolsbee, and Cass Sunstein. But they are gone now.
Today, the most powerful economic adviser remaining in the White House is Gene Sperling, head of the National Economic Council (NEC), the agency created by President Bill Clinton in 1993 to serve as his main source of economic policy (somewhat shunting aside the Council of Economic Advisers). Because this position does not require Congressional approval, the president may appoint whomever he wants, without having his choice raked over the coals in the US Senate. That is why Obama could appoint the highly talented but politically unpopular Summers, the former president of Harvard University.

Sperling is not nearly so well known as Summers. But his record of influence in government is striking; indeed, he has been at the pinnacle of economic-policymaking power in the US for almost a decade. He was the NEC’s deputy director from its beginning in 1993 until 1996, and its director from 1996 to 2000. Obama reappointed him as head of the NEC in January 2011.

His 2005 book The Pro-Growth Progressive contains many ideas about how to make the economy perform better. None is grandiose, but together they might help substantially. Some of these ideas found their way into the American Jobs Act, which might have had some real impact had Congress passed it in 2011.

The AJA embodied some of what Sperling describes in his book: subsidies for hiring, wage insurance, and job training, as well as support for education and early learning. Moreover, the AJA would have offered some balanced-budget stimulus – the kind of stimulus that would boost the level of economic activity without increasing the volume of government debt.
But the public, despite its concern about unemployment, is not very interested in the details of concrete plans to create more jobs. Sperling is just not very visible to the public. His book was not a best seller: in commercial terms, it might be better described as a dud.

Sperling is fundamentally different from the typical academic economist, who tends to concentrate on advancing economic theory and statistics. He concentrates on legislation – that is, practical things that might be accomplished to lift the economy. He listens to academic economists, but is focused differently.

At one point in his book, Sperling jokes that maybe the US needs a third political party, called the “Humility Party.” Its members would admit that there are no miraculous solutions to America’s economic problems, and they would focus on the “practical options” that are actually available to make things a little better.

In fact, Americans do not need a new political party: with Obama’s reelection, voters have endorsed precisely that credo of pragmatic idealism.


Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the second edition of which predicted the coming collapse of the real-estate bubble, and, most recently, Finance and the Good Society.

Robert J. Shiller : The Narrative Structure of Global Weakening

NEW HAVEN – Recent indications of a weakening global economy have led many people to wonder how pervasive poor economic performance will be in the coming years. Are we facing a long global slump, or possibly even a depression?

A fundamental problem in forecasting nowadays is that the ultimate causes of the slowdown are really psychological and sociological, and relate to fluctuating confidence and changing “animal spirits,” about which George Akerlof and I have written. We argue that such shifts reflect changing stories, epidemics of new narratives, and associated views of the world, which are difficult to quantify.

In fact, most professional economists do not seem overly glum about the global economy’s prospects. For example, on September 6, the OECD issued an interim assessment on the near-term global outlook, written by Pier Carlo Padoan, that blandly reports “significant risks” on the horizon – the language of uncertainty itself.

The problem is that the statistical models that comprise economists’ toolkit are best applied in normal times, so economists naturally like to describe the situation as normal. If the current slowdown is typical of other slowdowns in recent decades, then we can predict the same kind of recovery.

For example, in a paper presented last spring at the Brookings Institution in Washington, DC, James Stock of Harvard University and Mark Watson of Princeton University unveiled a new “dynamic factor model,” estimated using data from 1959 to 2011. Having thus excluded the Great Depression, they claimed that the recent slowdown in the United States is basically no different from other recent slowdowns, except larger.

Their model reduces the sources of all recessions to just six shocks – “oil, monetary policy, productivity, uncertainty, liquidity/financial risk, and fiscal policy” – and explains most of the post-2007 downturn in terms of just two of these factors: “uncertainty” and “liquidity/financial risk.” But, even if we accept that conclusion, we are left to wonder what caused large shocks to “uncertainty” and to “liquidity/financial risk” in recent years, and how reliably such shocks can be predicted.

When one considers the evidence about external economic shocks over the past year or two, what emerges are stories whose precise significance is unknowable. We only know that most of us have heard them many times.

Foremost among those stories is the European financial crisis, which is talked about everywhere around the globe. The OECD’s interim assessment called it “the most important risk for the global economy.” That may seem unlikely: Why should the European crisis be so important elsewhere?

Part of the reason, of course, is the rise of global trade and financial markets. But connections between countries do not occur solely through the direct impact of market prices. Interacting public psychology is likely to play a role as well.

This brings us to the importance of stories – and very far from the kind of statistical analysis exemplified by Stock and Watson. Psychologists have stressed that there is a narrative basis to human thinking: people remember – and are motivated by – stories, particularly human-interest stories about real people. Popular stories tend to take on moral dimensions, leading people to imagine that bad outcomes reflect some kind of loss of moral resolve.

The European crisis began with a Greek meltdown story, and it appears that the entire global economy is threatened by events in a country of only 11 million people. But the economic importance of stories bears no close relation to their monetary value (which can be measured only after the fact, if at all). It depends, instead, on their story value.

The Greek crisis story began in 2008 with reports of widespread protests and strikes when the government proposed raising the retirement age to address a pension funding shortfall. Reports began to appear in global news media portraying an excessive sense of entitlement, with Greeks taking to the streets in protest, even though the increase was modest (for example, women with children or in hazardous jobs would be able to retire with full benefits at just 55, up from 50).

That story might have invited some gossip outside of Greece, but it gained little purchase on international attention until the end of 2009, when the market for Greek debt started to become increasingly unsettled, with rising interest rates causing further problems for the government. This augmented news reports about Greek profligacy, and thus closed a negative feedback loop by attracting intensifying public interest, which eventually fueled crises in other European countries. Like a YouTube video, the Greek story went viral.

One might object that most people outside of Europe surely were not following the European crisis closely, and the least informed have not even heard of it. But opinion leaders, and friends and relatives of the least informed in each country, were following it, and their influence can create an atmosphere that makes everyone less willing to spend.

The Greek story seems connected in many people’s minds with the stories of the real-estate and stock-market bubbles that preceded the current crisis in 2007. These asset bubbles were inflated by lax lending standards and an excessive willingness to borrow, which seemed similar to the Greek government’s willingness to take on debt to pay lavish pensions. Thus, people saw the Greek crisis not just as a metaphor, but also as a morality tale. The natural consequence was to support government austerity programs, which can only make the situation worse.

The European story is with us now, all over the world, so vivid that, even if the euro crisis appears to be resolved satisfactorily, it will not be forgotten until some new story diverts public attention. Then as now, we will not be able to understand the world economic outlook fully without considering the story on people’s minds.

Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. His book Irrational Exuberance presciently warned of the dot-com bubble, and a second edition, released in 2005, predicted the coming collapse of the real-estate bubble. His most recent book, co-written with George Akerlof, is Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.

Robert J. Shiller: Does Austerity Promote Economic Growth? / 緊縮能推動經濟增長嗎？

NEW HAVEN – In his classic Fable of the Bees: or, Private Vices, Publick Benefits (1724), Bernard Mandeville, the Dutch-born British philosopher and satirist, described – in verse – a prosperous society (of bees) that suddenly chose to make a virtue of austerity, dropping all excess expenditure and extravagant consumption. What then happened?

The Price of Land and Houses falls;

Mirac’lous Palaces, whose Walls,

Like those of Thebes, were rais’d by Play

Are to be let; . . . .

The building Trade is quite destroy’d

Artificers are not employ’d; . . .

Those, that remain’d, grown temp’rate strive

Not how to spend, but how to live . . .

That sounds a lot like what many advanced countries have been going through, after financial-crisis-induced austerity plans were launched, doesn’t it? Is Mandeville a genuine prophet for our times?

Fable of the Bees developed a wide following, and generated substantial controversy, which continues to this day. The austerity plans being adopted by governments in much of Europe and elsewhere around the world, and the curtailment of consumption expenditure by individuals as well, threaten to produce a global recession.

But how do we know if Mandeville is right about austerity? His research method – a long poem about his theory – is hardly convincing to modern ears.

Harvard economist Alberto Alesina recently summarized evidence concerning whether government deficit reduction – that is, expenditure cuts and/or tax increases – always induces such negative effects: “The answer to this question is a loud no.” Sometimes, even often, economies prosper nicely after the government’s deficit is sharply reduced. Sometimes, just maybe, the austerity program boosts confidence in such a way as to ignite a recovery.

We have to examine the issue with some care, understanding that the issue that Mandeville raised is really a statistical one: the outcome of government deficit reduction is never entirely predictable, so we can ask only how likely such a plan is to succeed in restoring economic prosperity. And the biggest problem here is accounting for possible reverse causality.

For example, if evidence of future economic strength makes a government worry about economic overheating and inflation, it might try to cool domestic demand by raising taxes and lowering government spending. If the government is only partly successful in preventing economic overheating, it might nonetheless appear to casual observers that austerity actually strengthened the economy.

Likewise, the government’s deficit might fall not because of austerity, but because the stock market’s anticipation of economic growth fuels higher revenues from capital-gains tax. Once again, we would see what might appear, from looking at the government deficit, to be an austerity-to-prosperity scenario.

Jaime Guajardo, Daniel Leigh, and Andrea Pescatori of the International Monetary Fund recently studied austerity plans implemented by governments in 17 countries in the last 30 years. But their approach differed from that of previous researchers. They focused on the government’s intent, and looked at what officials actually said, not just at the pattern of public debt. They read budget speeches, reviewed stability programs, and even watched news interviews with government figures. They identified as austerity plans only those cases in which governments imposed tax hikes or spending cuts because they viewed it as a prudent policy with potential long-term benefits, not because they were responding to the short-term economic outlook and sought to reduce the risk of overheating.

Their analysis found a clear tendency for austerity programs to reduce consumption expenditure and weaken the economy. That conclusion, if valid, stands as a stern warning to policymakers today.

But critics, such as Valerie Ramey of the University of California at San Diego, think that Guajardo, Leigh, and Pescatori have not completely proven their case. It is possible, Ramey argues, that their results could reflect a different sort of reverse causality if governments are more likely to respond to high public-debt levels with austerity programs when they have reason to believe that economic conditions could make the debt burden especially worrisome.

That may seem unlikely – one would think that a bad economic outlook would incline governments to postpone, rather than accelerate, austerity measures. And, in response to her comments, the authors did try to account for the severity of the government’s debt problem as perceived by the markets at the time that the plans were implemented, finding very similar results. But Ramey could be right. One would then find that government spending cuts or tax hikes tend to be followed by bad economic times, even if the causality runs the other way.

Ultimately, the problem of judging austerity programs is that economists cannot run fully controlled experiments. When researchers tested Prozac on depressed patients, they divided their subjects randomly into control and experimental groups, and conducted many trials. We cannot do that with national debt.

So do we have to conclude that historical analysis teaches us no useful lessons? Do we have to return to the abstract reasoning of Mandeville and some of his successors, including John Maynard Keynes, who thought that there were reasons to expect that austerity would produce depressions?

There is no abstract theory that can predict how people will react to an austerity program. We have no alternative but to look at the historical evidence. And the evidence of Guajardo and his co-authors does show that deliberate government decisions to adopt austerity programs have tended to be followed by hard times.

Policymakers cannot afford to wait decades for economists to figure out a definitive answer, which may never be found at all. But, judging by the evidence that we have, austerity programs in Europe and elsewhere appear likely to yield disappointing results.

Robert Shiller, Professor of Economics at Yale University, is co-author, with George Akerlof, of Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.

Robert J. Shiller: 緊縮能推動經濟增長嗎？

荷蘭出生的英國哲學家兼諷刺作家伯納德·曼德維爾在其1724年出版的經典名著《蜜蜂的寓言：私人的惡德，公眾的利益》中用一首長詩來描述一個原本繁榮，卻突然選擇以節儉為美，放棄一切額外支出和奢侈消費的（蜜蜂）社會，詩文如下：

地價房價驟跌；

那些為享樂而建的，壯麗宮殿，

那些底比斯式的，雕梁鬥拱，

都要轉手；……

建築行業盡毀

營造者們也失了業；……

那些幸存者們，變得克己而勤奮

不為消費，只為生存……

在金融危機的影響下許多發達國家都啟動了緊縮政策，而這首詩的內容聽上去也與它們的近況極為相似——莫非曼德維爾才是預言我們這個時代的真正先知？

《蜜蜂的寓言》從出版至今依然擁有一大批追隨者並引發了大量的爭論。而歐洲大部分國家以及其他地區國家的政府所采用的緊縮政策以及個人消費支出的縮減，都可能導致一場全球性衰退。

但我們怎麼知道曼德維爾對於緊縮的判斷是對的？他的研究方法——一首闡述自身理論的長詩——往往難以令當今的人們信服。

哈佛大學經濟學家阿爾伯圖·阿里辛納（Alberto Alesina）最近總結了一些關於政府赤字縮減政策——即支出縮減和/或加稅——會否導致這類負面效應的證據：“對這個問題的答案是一個大大的‘不’字。”有時（甚至是經常性的），經濟會在政府大幅減少赤字後蓬勃發展；有時（但只在有可能的情況下），緊縮政策能以上述手段提振信心並激發復蘇。

我們必須謹慎地研究這個問題，並意識到曼德維爾所提到的狀況實際上是一個統計學上的現像：你永遠無法全面預測政府緊縮政策的結果，因此我們只能詢問這麼一個計劃成功推動經濟復蘇的可能性究竟有多大。而其中最重要的問題則是解釋可能存在的逆向因果關系。

比如說，如果某些與未來經濟相關的證據使某國政府擔心可能出現經濟過熱和通脹，它可能會嘗試通過加稅和降低政府支出來為國內需求降溫。即便這些防止過熱措施只取得了部分成功，但在普通旁觀者眼裡，這些緊縮政策似乎已經實質上增強了經濟。

同樣，政府的赤字不僅會因緊縮而下降，也可能是因為股票市場對經濟增長的預期帶來了更多資本利得稅收入。這一次我們可能也會從政府赤字的角度，認為是緊縮實現了繁榮。

而國際貨幣基金組織的賈米·瓜加爾多（Jaime Guajardo），丹尼爾·利（Daniel Leigh）和安德烈·佩斯卡托利（Andrea Pescatori）最近研究了過去30年內17國政府所采取的緊縮政策。他們把焦點放在政府的動機之上，並研究政府官員們的言論，而不僅僅是公共債務的模式。他們研讀預算報告，檢討金融穩定政策，甚至觀看那些政府高官的新聞采訪。在他們的定義中，緊縮政策是那些政府將加稅或者削減支出視為一個將產生潛在長期收益的明智政策，而不是對短期經濟預測的回應或者嘗試減少經濟過熱的風險。

他們的研究發現緊縮政策具有減少消費支出並削弱經濟的明顯趨勢。這個結論如果是正確的話，那麼政策制定者們就要小心了。

但包括加州大學聖地亞哥分校經濟學教授維拉莉爾·拉梅（Valerie Ramey）在內的批評者則認為上述論證並不完整。拉梅認為上述研究結果可能只是反映了一個不同形式的逆向因果關系，因為政府之所以更可能用緊縮政策來應對高公共負債水平，就是因為它有理由相信經濟狀況將令債務負擔特別令人憂慮。

這看上去似乎不太可能——有人會認為一個悲觀的經濟預測將促使政府推遲（而不是加速）緊縮措施。同時為了回應她的評論，三位作者也確實嘗試對緊縮計劃推出時市場對政府債務問題嚴重性的預期進行了評估，並發現了類似的結果。當然拉梅也可能是對的。但即便順推這一因果關系，人們可能也會發現政府支出削減或者加稅之後會經歷一段不景氣時期。

最終，評判緊縮政策的問題在於經濟學家無法運行一個完全受控實驗。比如研究者們測試百憂解（一種抗抑郁藥物）的時候，他們可以把被試者隨機分為控制組和實驗組並反復測試。而在國家債務問題上顯然是無法做到這一點的。

因此我們是否就可以認為那些歷史分析並無教益？我們是否應該回到曼德維爾及其某些繼承者（包括凱恩斯）的抽像推理方式，認為有理由去預期緊縮政策將導致衰退？

沒有抽像理論能預測人們究竟將如何對一項緊縮政策做出反應。我們沒有選擇，只能回顧那些歷史證據。而賈米·瓜加爾多及其同僚所發現的證據也確實顯示政府深思熟慮後出台的緊縮政策後面往往會伴隨一段不景氣時期。

政策制定者們不可能有幾十年去等待經濟學家們找出一個確定的答案——而這個答案甚至永遠都無法得出。但根據我們目前的證據來判斷的話，歐洲以及其他地區的緊縮政策似乎將帶來令人失望的結果。

作者為耶魯大學經濟學教授，與George Akerlof合著有"Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism"一書。