Narrator: Imagine a dinner in Washington, D.C., in 1974. The economy is struggling with stagflation—a nasty mix of high inflation and stagnant growth. At the table are economist Arthur Laffer and top White House officials, including Dick Cheney and Donald Rumsfeld. In a moment of inspiration, Laffer grabs a napkin and draws a simple, U-shaped curve. He explains that at a 0% tax rate, the government gets zero revenue. At a 100% tax rate, it also gets zero revenue, because no one would bother to work. Somewhere in between, he argued, lies a perfect tax rate that maximizes revenue. The implication was clear: cutting high tax rates could actually increase government income.

This simple sketch on a napkin, later dubbed the "Laffer Curve," went viral. It became a cornerstone of supply-side economics and a powerful justification for the Reagan-era tax cuts. But what if the power of the Laffer Curve wasn't just its economic logic, which many economists still debate, but its power as a simple, compelling story? What if major economic events—from stock market bubbles and housing crises to the rise of cryptocurrencies—are driven less by rational calculations and more by the stories we tell ourselves? In his groundbreaking book, Narrative Economics, Nobel laureate Robert J. Shiller argues precisely this, presenting a new way to understand how viral stories shape our financial world.

Narrator: Shiller's central thesis is that economic fluctuations are not just the result of policy changes, data, or rational actor models. Instead, they are substantially driven by the spread of popular narratives. He proposes that these stories propagate through society much like diseases in an epidemic. They have rates of contagion and recovery, and their spread depends on how easily they can be transmitted from person to person.

A narrative becomes contagious when it is simple, emotionally resonant, and easily shared. The story of Bitcoin is a perfect modern example. It began in 2008, in the ashes of a global financial crisis that shattered public trust in traditional banks. An anonymous creator known as Satoshi Nakamoto published a white paper for a decentralized digital currency, free from government or corporate control.

This origin story was potent. It wasn't just about technology; it was a narrative of rebellion, innovation, and empowerment. Early adopters, like cypherpunks and libertarians, acted as evangelists, spreading the story through online forums. As Bitcoin's value began to rise, the narrative mutated. For some, it was an anarchist tool to overthrow the financial system. For others, it was "digital gold," a safe haven against inflation. For millions more, it became a get-rich-quick story, fueled by headlines of overnight millionaires. This constellation of related narratives reinforced each other, creating a powerful confluence that drove a global speculative frenzy. The Bitcoin story demonstrates how a compelling narrative can inspire real economic behavior—in this case, billions of dollars of investment—based almost entirely on a shared belief in its future.

Narrator: While complex economic theories often remain confined to academia, simple and intuitive narratives can capture the public imagination and exert immense influence on policy. The Laffer Curve is the quintessential example of this phenomenon.

The story of its creation—a brilliant economist sketching a revolutionary idea on a napkin for powerful political figures—was a narrative in itself. It was memorable and easy to repeat. Journalist Jude Wanniski became the narrative's key evangelist, popularizing it in the pages of The Wall Street Journal and in his 1978 book. The visual of the curve was powerful; it made a complex economic argument seem like simple common sense.

The narrative suggested that tax cuts weren't a giveaway to the rich, but a magic bullet for the entire economy. This story aligned perfectly with a political agenda favoring deregulation and lower taxes. It spread rapidly through political circles and the media, ultimately shaping the economic policies of the 1980s in both the United States and the United Kingdom. The actual economic evidence for the Laffer Curve's claims is highly contested; the optimal tax rate is notoriously difficult to pinpoint and depends on countless variables. Yet, the story of the Laffer Curve was so effective that it drove policy, illustrating Shiller's point that the virality of a narrative can be more important than its empirical truth.

Narrator: Shiller argues that many of the economic narratives that feel new are actually mutations of perennial stories that have recurred for centuries. These narratives tap into fundamental aspects of human psychology: fear, hope, greed, and the desire for a moral order.

One of the most enduring of these is the narrative of the "self-made man." This story, which gained prominence in the 19th century, tells of an individual who rises from poverty to great wealth through sheer hard work, perseverance, and ingenuity. Figures like Andrew Carnegie became real-world avatars for this narrative, while Horatio Alger’s fictional characters cemented it in the popular consciousness.

This story is powerful because it promotes a belief in boundless opportunity and social mobility. It frames success as a direct result of individual virtue and effort. However, it also carries a darker implication. If success is purely a matter of hard work, then failure must be a result of personal weakness or a lack of effort. This narrative often overlooks the role of luck, privilege, and systemic barriers in economic outcomes. As data shows rising income inequality in the United States, the narrative of the self-made man persists, shaping debates about social safety nets, wealth distribution, and fairness. It demonstrates how a timeless story can provide a powerful, if incomplete, framework for how we understand our economic lives and the roles we play within them.

Narrator: Economic decisions are not always made to maximize profit. Sometimes, they are driven by a powerful social narrative and the fear of being cast as a villain within it. Shiller explores this through the narrative of the "profiteer," which became especially potent during the high inflation that followed World War I.

As prices for everyday goods soared, public anger needed a target. The narrative that emerged was one of evil, greedy businesses and individuals exploiting the public's suffering for personal gain. This story simplified a complex economic phenomenon—inflation—into a simple morality play of good versus evil. As one writer from the era, Henry Hazlitt, observed, everyone was pointing fingers. The butcher was outraged by the shoe salesman's prices, the shoe salesman was astounded by his landlord's rent, and the landlord was staggered by the price of coal.

This narrative created immense social pressure. The fear of being labeled a "profiteer" could directly influence business decisions, sometimes in ways that defied economic logic. Shiller recounts the experience of economist Irving Fisher, who visited a clothing store in Germany during its hyperinflation in 1922. The owner offered him a shirt at a surprisingly low price. When Fisher asked why, she explained, "That shirt I sold you will cost me just as much to replace as I am charging you." She was so afraid of being seen as a profiteer that she was willing to sell her goods at virtually no profit, just to maintain her social standing. This shows how a powerful moral narrative can override the rational profit motive, directly impacting market behavior and demonstrating that our economic choices are deeply entangled with our social identity.

Narrator: The single most important takeaway from Narrative Economics is that we cannot fully understand markets, recessions, or booms without understanding the stories that animate them. Economic models that treat humans as purely rational calculators miss the most human element of all: our need to make sense of the world through narrative. The economy is not just a machine of inputs and outputs; it is a dynamic ecosystem of shared beliefs, emotions, and stories that spread, mutate, and drive collective action.

Robert Shiller’s work challenges us to become more critical consumers of the economic stories we hear every day, from news headlines to political speeches to conversations on social media. It leaves us with a crucial question for our own lives: What economic narratives are you currently subscribed to, and how are they shaping your decisions about what to buy, where to invest, and who to trust?