Nobelpreisträger Shiller: So steht es wirklich um die Weltwirtschaft // Mission Money

the Haute owns the schlimm stir get sassy on Anna tighten the spur unfolded on harder there no webhost hangar seven had save a common and abhorrent known video their mission money visit hurt a BEC MIT einem who Coretta MIT einem no pay past Hagar V harm Robert chiller Kevon and thirty mission money owned since they're stalled self as an addict Anderson cognomen David on another emphasized on that and noise Fukushima negative avoid shaft of English narrative economics welcome mr. Schiller my pleasure it's an honor to have you on our show we used to have an appointment in Berlin but it's a pity you had to cancel your flight concerning because of the corona virus and now we have to talk about this topic of course it's everywhere you told Bloomberg some weeks ago that you're not sure whether we see a correction or if we are already in a bear market what is your guests today well technically a bear market is a 20% drop so we're already there now the question is how much further might it go down and right now it's looking a little a little scary I haven't sold I'm still mostly in but I think further the problem is we don't know the prices of stocks have come down a great deal and and there's also the thought that it might be a buying opportunity so I think it's very hard to answer what what the outlook will be because we haven't really been in a situation like this before if you go back a hundred years it you could go back to the 1980s the rapid emic which was similarly dangerous but that's an awfully far time going back to make comparisons and also it was the end of World War one at that time when that came up and so there were other things going on it didn't cause a huge drop in the sudden drop in the market in 1918 for what that's worth it didn't so I don't know what what to expect from here on you said recently that the the consequences of Corona would still be underestimated so how worse will it be or how worse could it be well this is a question for an epidemiologist now actually my book that you just displayed is about epidemiology applied there economics but in order to predict a specific epidemic I'd have to be a reality but it does suggest the epidemic epidemic models do suggest that this crisis may not be over until most of us are infected have been affected because it will just come back you might put everyone into social distancing or the like but when you stop doing that it will just come back so it's it's it's a serious problem that we have it's and it's different from usual economic problems and then it's grounded in biology but we'll come to the narrative in a few minutes but if the economy will stand still in the next weeks and maybe we hope not but maybe four month could it be the worst recession in history well it could be I don't like to talk about extremes the people that our US Treasury secretary minuchin just said that it could be 20% unemployment if we don't deal with it that's it slightly less severe than the Great Depression but now it's close but I think it's different everything is you know every time someone Changez history is always coming up with new surprises and we have not seen a depression caused by an epidemic within over a hundred years or even longer than that what is so dangerous at the moment and many people talk about the shock on the supply side and on the demand side what's the real problem in your opinion at the moment well actually there are two epidemics going on you can call them Co epidemics since they interact with each other there is a medical epidemiologist chaos that might be coming soon what one very frightening narrative is the narrative about hospitals being overwhelmed with sick people and then having to turn people away to die because they can't deal with the shortage of ventilators that people be having trouble breathing and we can put them on a ventilator but if there aren't enough ventilators you're going to have to decide who gets what and who doesn't these are scary narratives there's still in the future but they're not so far into the future could you explain to us how a narrative works what it is and how it works and why it could or can become so dangerous yeah so the story heard narrative in the English language has become to mean a telling of a story that involves some meaning the story has moral implications or it explains how the world works explains mechanisms that you have to interact with in the economy those are economic narratives the the theme of my book is that economic narratives are like viruses first of all they spread according to the laws of Epidemiology by contagion and secondly they have many forms they mutate and just like influenza isn't one epidemic it's there's many different varieties of influenza same is true for narratives they're difficult to study because there's so many of them they occur in constellations I would say of narrative narratives that example about the corona virus would be a constellation of narratives and once people are interested in there in a particular narrative they want to hear variations on it and so the variations on it tend to spread that's what we're seeing that we're seeing here a constellation of coronavirus narratives that have really captured the attention of the world you are writing in your book that the moral is very important for a narrative to go viral could you explain it to us and the contagion rate you mentioned in your book what is the contagion rate yeah well the contagion rate is the percent of the population that is infected per unit of time and a high contagion rate narrative doesn't have to be a good narrative it just has to be contagious something that people will repeat a joke is an example of a contagious narrative it's good if they have touch lines say if there is some surprise element in the story and it's also good if the narrative involved a celebrity figure that we've all heard of or if not a celebrity figure at least a human-interest figure who might become a celebrity be through the narratives so for example great that thun Berg is a is an example of a young women who want went viral with her campaign for sustainability and so there's a there's a constellation of narratives around sustainability that her and in a substantial measure but now all that has been pushed aside by a new narrative coronavirus and we're not thinking so much about sustainability at the moment we're thinking about surviving did you have a Rica moment when you did your research so what was the trigger where you saw okay there's a definitely connection between economics and narratives what was the trigger for you well this thing has been blooming in my mind for 50 years I think when I was an undergraduate in college I was impressed by a history course that I took and I thought that maybe I'm learning more about economics from the history department than from the economics department because it seems like the essence of the Great Depression which I was studying then back then was a succession of narratives that got people very anxious and unwilling to spend money how does a crisis begin you say in your book what do what you mention right now when people stop buying is that the case at the moment well at the moment it's complicated we're seeing people eating out less or are going to movies less but we see them in a buyer's panic at grocery stores trying to get stocked up but I think the net effect is definitely negative so people are buying less than they normally would and then by quite a wide margin if you just stay home and do nothing you're buying nothing practically just food but what would be the solution what do you tell the people try to live as normal as possible or to rescue our economy or would it be a bad advice well there's no good solution it's a very disruptive event but what you want to do is prevent side effects as much as possible so people who are staying home they don't have any money it's a they're not being paid the businesses may go paid but businesses that would work that where they work because they have to pay the rent they've bought supplies and now they can't sell them there if it's a restaurant the food is spoiling and again they paid for it and they so it's creating a lot of interruption type disruptions the US leadership declared that they will give money to the people as a mutant I mentioned it would it would it help or does it show how bad the situation is it's interesting that this is an embodiment of what's called the universal basic income where you give money to everyone other nation said he wouldn't give it to millionaires but most people would get in the thousands of dollars as a as a gift from the government as some people call it helicopter money going back story about is an old narrative from economist about if your government wanted to stimulate the economy all they'd have to do is hire a fleet of helicopters and drop money all over the place and people would pick it up and spend it well that's kind of what we're doing it's not using helicopters it's it's a revolutionary economic strategy which i think is setting a precedent maybe well maybe this kind of thing will happen more in the future and then if it's happening all the time it's a universal basic income mmm okay but will it work or in your are you optimistic or pessimistic concerning the let's call it helicopter money yeah well I think it will work in the sense that it will avoid immediate crises for some families and that's important otherwise we will have narrative spreading about people in desperate that you children who are hungry that kind of thing so I think it will work but it won't work completely because the disruption is real and it's also psychological I think a lot of people are just anxious right now the thought that you might actually die in a couple of weeks focuses the mind for me it's crucial how bad the new us a will be hit by Corona Juarez so what do we expect and is it already priced in the stock market so that the USA could become real trouble or could get in real trouble yeah so that's an interesting question the stock market has fallen something like 20 25 percent it's not that in the Great Depression it fell over 80 percent so and it didn't do it all at once it wasn't there one day then people talked a lot about the 1929 crash but it really fell 12 percent on the first day so it's like what we've just seen we saw a 12% drop in the Dow just a few days ago the question of whether they'll be repeated declines in the stock market over years now the thing that's different here when compared with the Great Depression is that this time I'm the narrative is somewhat transient this epidemic is expected to be over in a year or maybe less time than that it's not known for sure obviously but in that but in that time it will have exposed was maybe 70% of the population will have caught this little bit that's what uncle Americo said for Germany I think or she was quoted it as an example so but that's still short right now heads its we'll see a lot of deaths and we'll see a lot of economic disruption for a year but after that may be able to be back to normal and so that's short run by the standard of the stock market when you buy a stock you are buying a claim on the profits going into the indefinite future not just one year so that market has a tendency to over react to short-run narratives and so we may be we may have already overshot that the market is is down too much and so this might be a buying opportunity but in the meantime it's awfully an irregular and it could it could decline much more that that's that's the big unknown so it could drop by 80% many Wall Street guys are read an article some days ago and have created the word an investable and so would you invest at the moment or would you become and wait for better times at least if it is more obvious how far it can go so how long the epidemic will last on us yeah well I don't I don't put myself up as an example I'm an emotional person like anyone else I sold a little bit but still a substantial you know I'm half of in the market so yeah we just don't know it's an unfortunate thing that people come out with forecasts but those are stabs in the dark nobody knows but regarding the talking about the 80 percent decline in the markets in 1929 as a bit in misleading because that's the worst one name thirsty guy so we don't expect you know when you think about this coronavirus it it's not the worst thing that ever happened and it will it will pass so that's why I think we shouldn't over is the coronavirus a Black Swan in your opinion yeah Black Swan refers to something that people thought couldn't happen and so in a sense it's a Black Swan but in another extent it was predicted there were epidemics have been saying all along that this is something that could happen it's just that in our everyday thinking we don't we don't dwell on that it seems like it's never happened not since 1918 extreme level so we just don't worry about it apparently that's what happened with Donald Trump who our President of the United States who shut down the Directorate for global health and Prevention which was supposed to be focusing on pandemics he shut down the whole office that was designed to study that and now he claims he doesn't even remember doing it I think somebody else did it so he just wasn't focused on that we get there's a tendency for public opinion to focus on some thing and overreact so we were focused on immigration and so is Germany I think but that wasn't their biggest problem at the moment how would you assess Trump's leadership in the last days not great I think it's you know of course he's a head of a big team that of people that he appoints but he's been the big guy and his attitude toward employees that he gets them fired regularly he's replaces chief of staff his Treasury secretary he's done that again and again so it creates chaos and it it doesn't it doesn't encourage long term thinking about Black Swan events like the corona virus I read you talk concerning Trump about a possible Hoover moment for him could you explain it to us what did you mean Herbert Hoover was elected president of the United States in 1928 and in 1929 he became president before the crash the crash occurred when he was president of the United States and his his his term of office was pretty much steadily downhill everything was getting worse but for two or three years and during that time Hoover thought that it was his job to boost spirits boost confidence so he kept saying that the correction up is a rounded corner things are going to get better before you know it and with that he kept turning out to be wrong again and again they kept getting worse even though you kept saying it was getting better and he became a laughingstock that Hoover again is saying it's always going to get better I think politicians have to Rio no Donald Trump made the same mistake with regard to the coronavirus he gave his own forecast and said that he thought it was nothing I'm not quoting exactly but he said before you know it'll just disappear and so he's suffering the same public ridicule that we got for Hoover he's coming around he now is working harder to but meanwhile his reputation has been harmed I think what destroy his campaign for the election depends on what happens between now and the election there's a long time still I suspect it's not good for the election prospect the markets seem also to have lost faith in the FET so the central bank acted twice but the markets dropped sharply so it is a tipping point concerning the power of the central banks yeah well part of the story part of the is that interest rates now are virtually at zero in the short rate short rates in the United States and we're gonna have to consider going negative you can't go to much more and so is kind of out of ammunition so he made a dramatic statement by cutting interest rates a full percentage point but now he's done now he could try quantitative easing which they are also trying and but that runs up against affected interest rates at the law again they're already very low so he is somewhat out of ammunition that's that's a problem that's why I think the the new proposals to for helicopter money are important and they may actually bring in a new era I think that we're an event like this will be remembered vividly and the idea of helicopter money that sounds kind of funny call it a universal basic income is being enhanced by this experience and I think that will last for a long time we can actually give people an income and in at least in times of crisis it looks like we have to do there many people say Corona was the trigger but not the reason for this crisis would you agree the stock market and the housing market has become quite pricey they're supposed to be going up well the stock market has been going up for ten years the long bull market and the housing market in the United States has also been rising ever since 2012 so it's a long bull market in basic assets and so I think that there was a correction looming but there was no reason we had Corrections we had almost we had a correction in early 2018 where stock prices fell about ten percent and then we had another one in late 2018 when stock prices in the u.s.

Fell almost twenty percent but they always came back there was no there was no story that would justify this being 1929 again and so just getting back now this is not a reason that this current story that's not offer reason to think it's 1929 again either not necessarily because it's it's it's really different it's it's caused by a temporary shock that will if you don't die and you'll be okay and you'll be back to normal living so there isn't a narrative in the Great Depression there was a narrative about technological unemployment that had gotten very strong that people thought that machines were replacing jobs robots were replacing jobs and that the the strength of the economy was indefinitely harmed so for example in the 1930s the dial telephone first became common I the dial telephone replaced an operator you used to have to talk to the operator and she would usually oh she wouldn't connect the switchboard dear does your destination when you made a phone call but with a dial telephone that was completely automated and so that they referred to the telephone as a robot replacing jobs forever those jobs as switchboard operators were gone forever I have to say we still have some switchboard operators but it's not as big as it once was you are an expert for bubbles and crises so you warned investors already in the year 2000 it's 20 years ago your book irrational exuberance was released this these days how does a bubble tea well open it's a bubble all also a narrative yes a bubble is a specific kind of narrative where the impetus for the narrative has something to do with price changes I mean that's valued in the marketplace and that whose price is talked about and so the narrative has a specific contagion it's born out of envy for other people who thought to buy into the market heavily in fact people who were most aggressive were people who would borrow money and put it into the market and so those people became the subject of admiration and regret – for not having done that why didn't I see this coming but then those same people become a source of instability who borrowed money to buy stocks or housing because now as the market goes down they are bankrupt or they may be bankrupt and so the story it takes an unusual twist at the bursting of the bubble you mentioned the word flipper in your book it was very interesting for me so you told us that the reason for a bubble or for a stock market crash was born earlier so what what is the word flipper what has it to do with this the English word flipper from the verb flip like the flip of pancake or something first appeared in the 1980s they didn't have it before that the word appeared with regard to people who were flip flipping condominiums people who were buying real estate in urban areas that was expensive speculative the boom and then starting it quickly that's like it's flipping you sell it within days or months of having bought it and it had a profit so it used to be apartment apartment building there condos condominiums but in the in the 21st century it became to be applied but was also applied to people who flipped initial public offerings or other things but it became a very popular work in the 21st century with the housing boom where people would be boasting about having made money by buying multiple houses and selling them quickly you buy them you fix them up so that they look better you sell them and not that everyone did that that was a elite minority who did that who actually were major flippers but it it brought publicity into the market and encourage people to buy buy a bigger house than they would ever try to try to invest heavily borrow more than they would have to buy a house because they didn't want they want to be a little bit like a flipper and that was a that was a narrative it was a constellation of narratives but was the narrative in the last year's for the booming stock market the word flipper and the greed of the people or also did the Donald Trump play role well yeah greed is a important thought in the recent bull market and Donald Trump exemplifies that Donald Trump has touched a nerve he's recognizing something that is deeply rewarding about his his leadership to many people and yes I understand that Donald Trump is a motivational speaker he writes books on how to improve your life and by taking control strong control and he also is a campaigner for the the the the good life the he says you in one of his books maybe it was a Trump how to get rich you know with the Meritage McIver he he says you have to live the story you have to if you want to be rich you want to start looking rich and this that envelops around you becomes your reputation and becomes a source of wealth for you I'm not quoting him exactly but it's something like that it is so people I think he also shows real contempt for quote losers people who just are hopeless and so it led to people wanting to present themselves as winners and money I believe so let's come to the last part your fame escape so the valuation of the stock market was not that low in the last year's or the last month so our stocks already cheap right now when we just look at the K but it's is it hard to calculate at the moment well we can calculate it is it low so if you look in Europe as of a couple days ago it was around 16 and that is about average historically and it's roughly average so it's not highly priced in Europe at the moment same thing in the United State well in the United States is higher it's as of a day or two ago go down 23 so it looks still somewhat highly priced in the US but not nearly so much so it looks like it might be a good investment I hate to say that right now because it's so volatile right now and it could drop a lot I just don't know but when it's average or even above average and Corona and the economy problems are still looming isn't it still too expensive yeah I'm not advocating going in wholesale at this point but whether you want to sell everything is another question so some exposure to the stock market might make sense yeah yeah we all can't get out by the way if we all try to get out the market will fall to zero and there has to be a point when it's a buying opportunity so maybe we hit that point and maybe not I just don't know okay and when would be the market very cheap so Goldman told us some days ago that SMP could find a bottom at two thousand points so where is the lowest low if it doesn't fall to zero well we got down to it in the United States we got down to a Cape of thirteen in 2009 so that's a little more than half of what it is now in 1932 we got to have to do something like six you can get a lot lower I I wish I could the forecast I I more accurately I we just don't have the ability it you know trying to forecast now makes one a little bit of an epidemiologist also so one issue is will will warmer weather reduce the contagiousness of this virus people still don't know the answer to that question well let's start the extreme measures taken by governments to the to a reduced contagion well those work we don't know another question we still don't know the answer to is how effective once you get the corona virus and survive effective is your immunity and how long will that last you might get it twice there are examples of that and unfortunately so there's a lot of unknowns in epidemiology that we have to deal with and then on top of that they're the economic unknowns because we've never really had a crisis quite like this before so we needed a positive news now is it possible to influence a narrative like coronavirus could we turn it positive or more positive in some way or is it simply not possible to control a narrative or influence it I think it is possible and we have to rely on the instincts of the narrative builder it's not easy to construct a contagious counter narrative that counters this frightened narrative that accompanies economic interaction I mentioned already Herbert Hoover who tried to with restore confidence and it didn't work so I think that it's important for government figures to to do a convincing case that they're responding well to the to the crisis for all of us I think there's some there's something to be gained by us all showing a sense of camaraderie with our fellow citizens and a moment of support for everyone that that will help but it is it is substantially a disease epidemic that's not going to do thank you so much mr.

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