Summary
Summary of Nobel laureate Robert Shiller’s 2017 AEA Presidential Address, arguing that economic ideas spread like epidemics — through contagious narratives, not rational evidence evaluation. Shiller documented that economic models and political slogans follow the same hump-shaped viral curve as infectious diseases. The Laffer Curve case study shows how a napkin sketch became the policy foundation for Reagan’s tax cuts.
Key Points
- Shiller’s AEA conference finding: of thousands of economics papers, none mentioned “meme” or “viral” — economists don’t study their own propagation mechanisms
- Narratives are “simple stories that explain the world, stimulating and easy to remember and share” — they go viral, like diseases
- Economic ideas follow a Kermack-McKendrick epidemic curve: rise, peak, decline — same as infectious diseases
- Laffer Curve: originated in 14th-century Ibn Khaldun; “discovered” on a napkin at a 1974 dinner with Dick Cheney, Rumsfeld, and Jude Wanniski; went viral in the late 1970s coinciding with Reagan’s election; directly influenced Reagan tax cuts (top bracket: 70% → 28%)
- The Laffer Curve’s virality had nothing to do with its empirical validity — its success was that it was simple, academic-seeming, backed by an interesting story, highlighted by prominent publications
- “Ideas are only as good as their narratives. If cutting taxes was the idea, the Laffer Curve became the vector that propagated this idea effectively”
- Trump’s “Make America Great Again”: registered as a slogan in 2012 — Shiller called Trump “a master of narratives”
- “Build the Wall” worked as a narrative because it gave psychological safety of secure borders to people angry about globalization
Newsletter Angles
- This is the foundational theory for why “ARR” and “annualized revenue” language in the AI industry works: it’s a contagious narrative that sounds like it reports actual results while obscuring them
- The Laffer Curve case study is the ur-example of a financial narrative that shaped policy through virality rather than evidence. It’s the template for “trickle-down economics,” “fiscal cliff,” and now “AI will create jobs” or “AI will replace all jobs” — each propagates as a narrative first
- The connection to Algorithmic Radicalization: memes are to political radicalization what narratives are to economic policy. The ISD meme source and this source are structurally identical arguments applied to different domains
- Shiller’s insight that economists don’t study their own propagation mechanisms is still true for AI researchers: the narrative that “AI will save/destroy everything” is itself a viral meme that shapes research funding and policy
Entities Mentioned
- Algorithmic Radicalization — memes as economic/political narratives; the mechanism is the same (virality, emotional resonance, simplicity)
Concepts Mentioned
- Echo Chamber and Polarization — partisan echo chambers amplify economic narratives as well as political ones
- Focal Point Coordination — Shiller’s “narratives” are Schelling focal points for economic behavior
Quotes
“Narratives are vectors of ideas. Just as the success of malaria depends on the success of its vector — mosquitos — ideas are only as good as their narratives.”
“The Laffer Curve epidemic was followed during the Reagan presidency by a reduction in the top US federal income tax bracket from 70 percent to 28 percent.”
“[Trump] is a master of narratives. The time has come for economists to master the concept of narratives as well.”
Notes
Published 2017 in ProMarket (U of Chicago Booth). This is a secondary synthesis of Shiller’s address, not the address itself. Relevant to the newsletter as theoretical grounding for how economic and political narratives spread — applicable to AI hype, pricing dynamics, and political polarization.