How stories can help explain booms and busts
Oct 10th 2019EVERYONE KNOWS, 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.In his new book, “Narrative Economics”, Robert Shiller, a Nobel laureate, offers this tale as an example of a contagious narrative that becomes part of folk wisdom. A story need not be accurate to spread. Mr Shiller searched archives of newspapers from the period, and could find no record of it. But he did find a similar kind of story in the Minneapolis Morning Tribune. The stockmarket, it said, could not yet have peaked because “we do not hear of the chamber maids and bootblacks who have cleaned up fortunes by lucky plays.” That story was published in 1915.Choose us for news analysis that respects your time and intelligenceSubscribe to The EconomistWe filter out the noise of the daily news cycle and analyse the trends that matterWe give you rigorous, deeply researched and fact-checked journalism. That’s why Americans named us their most trusted news source in 2017Available wherever you are—in print, digital and, uniquely, in audio, fully narrated by professional broadcastersThis website adheres to all nine of NewsGuard‘s standards of credibility and transparency.ORContinue reading this articleRegister with an email address