Thursday, May 6, 2021

What Gutenberg Hath Wrought: Robert Shiller On The Media And Speculative Bubbles

The good professor dates the sociological phenomena we recognize as a bubble to the 1600's or so, but there was at least on bubble prior to the wide dispersion of the printing press. One of these days we will do a post on it.

From The Motley Fool via USA Today, November 22, 2013:

How the media blows bubbles

The first real newspapers appeared around the 1600s in Holland, Yale economist and recent Nobel Prize winner Robert Shiller mentioned at a conference in Orlando last week. That was also around the time the Dutch tulip bubble formed. "I can't find much evidence of financial bubbles before then," Shiller said.

We've been having them consistently ever since.

Those two factors -- newspapers, then bubbles -- aren't coincidental, Shiller asserted. "The big fluctuations of bubbles are primarily social-psychological changes," he said. You need a well-armed media to drive that change. "You can't have a bubble with word of mouth."

Think about the last three bubbles.

Radio went mainstream in the 1920s. For the first time ever, Americans were connected to each other live across the country, listening to new ideas they had never been exposed to. "It connected you to the world," Shiller said. Radio not only made people optimistic about the future, but it spread new ideas -- like the power of investing in stocks, spawned in 1924 by Edgar Lawrence Smith's book Common Stocks As Long Term Investments. Soon came one of the biggest stock market bubbles in history.

The Internet did the same 70 years later. Virtually overnight, the entire world was connected for the first time, sharing ideas and being exposed to thoughts traditional media outlets had never covered. "It was hard for this not to make you optimistic," Shiller said. In the mid-1990s, Wharton economist Jeremy Siegel wrote the book Stocks for the Long Run, echoing Smith's message from the 1920s. A new mindset took hold. Stocks tripled in less than seven years. You know how the story ends.

Same for housing. From 1890 through roughly 1990, inflation-adjusted home prices nationwide were flat, if not declining. Searching through more than 100 years of newspaper archives, Shiller found almost no mention of home prices, except in construction trade journals. "It just wasn't on people's minds," he told me a few years ago. "No one cared. One expected to buy a home as part of normal living and didn't think to worry about what would happen to the price of homes." That all changed in the early 2000s, with a burst of media coverage on rising home prices. "In June 2005, there was this media explosion on housing as an investment," Shiller said. Newspapers, TV, and the Internet went nuts about how much money could be on homes. A TIME magazine cover that month read, "Home $weet Home." Prices peaked soon after....


If interested see also:
Information Tecchnology: Gutenberg, not a good businessman