Robert Shiller says the workings of animal spirits are global:
The popularity of the term “green shoots” shows the kind of social epidemic underlying our changing thinking. The phrase was propelled in Britain by Shriti Vadera, the business minister, in January, and mutated into a more contagious form after Ben Bernanke, the Federal Reserve chairman, used it on “60 Minutes” on March 15.
The news media didn’t need to change the term for different cultures around the world. With nothing more than a quick translation — brotes verdes, pousses vertes, grüne Sprösslinge, etc. — it is now recognized as a symbol of a revival coming soon.
All of this suggests that a social epidemic is supporting renewed confidence. This confidence can keep growing by contagion, as a kind of self-fulfilling prophecy, and we may see the markets and the economy recover further.
But in an economy that is still unstable, the stories could also morph into different forms, the price feedback could turn downward and the dynamic could turn ugly again — just as it has in the past.
Mark Thoma adds:
It seems quite reasonable that the spread of information (wrong or right) can reinforce trends in economic activity, and hence magnify and propagate shocks, but as noted in a part of the article not included above, this doesn't help us much with the problem of predicting turning points in economic activity. Predicting when the stories suddenly "morph into different forms ... is actually very complex. And even when feedback mechanisms are straightforward, they can produce very strange outcomes, not predictable very far into the future..."
Mr Thoma gets at one of the real difficulties with Mr Shiller's view on the workings of financial markets and economies generally. Clearly there is something to the "social epidemic" model of boom and bust, but how does one extend that into a framework which has some kind of explanatory power? Why do some memes cascade into panics or manias, booms or busts, while others fizzle? How do we separate out the psychological effect from the underlying economic dynamics. Mr Shiller describes a scenario in which the world whispered "green shoots" until things got better. Perhaps so, but how much of incipient recovery can be attributed to that and how much can be attributed to reactions to actual improvements in economic conditions, or to countercyclical policy choices made by governments?
The problem is that bad stories and talk will tend to coincide with bad conditions, and good stories and talk will tend to coincide with good conditions. So while it's almost certain that social learning through the press will tend to amplify changes in prevailing sentiments, it's hard to know what more can be said about that process.
This article originally appeared on The Economist.com