Sponsor Voice (2:03)

This message comes from BetterHelp. The new year isn't about doing more, it's about carrying less. Therapy can help you unpack what's been heavy and bring more clarity, calm and perspective into 2026. It's a small act that can lead to big relief and real perspective for the year ahead. You can't step into a lighter version of yourself without leaving behind what's been weighing you down. Visit betterhelp.com NPR for 10% off.

Waylon Wong (2:30)

Traditionally, economists only looked at data with hard numbers. But then Robert Shiller came along and said, wait a minute, people don't make decisions only with data. Stories really matter. In fact, these narratives are important economic data.

Ricky Mulvey (2:45)

Robert Shiller is the Nobel Prize winning economist famous for the Shiller ratio, which measures how expensive the stock market is.

Waylon Wong (2:52)

But his idea on economic narratives caught on with other economists, including other Nobel laureates.

Daron Acemoglu (2:57)

Darun Acemoglu and I am an institute professor at MIT.

Waylon Wong (3:02)

Darun won the Nobel Prize in 2024 for his work on institutions and how they affect a country's prosperity.

Ricky Mulvey (3:09)

And one reason why Darun is interested in narrative economics is that it can help explain why some ideas catch on changing culture and institutions and why technology leaders are so influential in reality.

Daron Acemoglu (3:23)

Of course, ideas matter. Ideology matters. How you present arguments matter. They matter particularly for things like coalitions. They also shape beliefs.

Waylon Wong (3:33)

So what turns a baby economic idea into a real force?

Daron Acemoglu (3:38)

Powerful narratives have to get their power from somewhere. Some of it is internal. They can be simple. They can be catchy, like a jingle. But ultimately, human society is built around status.

Waylon Wong (3:50)

In other words, economic narratives often have powerful people repeating the same story.

Daron Acemoglu (3:55)

So ideas that are expressed, propagated, defended by high status people are more likely to become powerful ideas.

Waylon Wong (4:03)

Robert Shiller theorized that it's not necessarily about truth. These stories can be non factual. They may need a whiff of truth, but as long as someone powerful is spinning it and they sound good, they these narratives can influence you, how you spend, save. And they especially affect investors.

Ricky Mulvey (4:21)

One example that Daron has written about goes back more than a century. A charismatic startup founder convinced retail investors and governments to fund a project which he claimed would change the world.

Daron Acemoglu (4:32)

Ferdinand de Lesseps, who was responsible for the building of the Suez Canal.

Ricky Mulvey (4:38)

Ferdinand de Lesseps was sort of a 19th century Elon Musk.

Waylon Wong (4:42)

And like Musk, Lesseps was the public face of an ambitious engineering project. He sold a future before the technology was fully proven and bent reality to fit his version of it.

Ricky Mulvey (4:53)

Lesseps knew to change his pitch for different audiences. For example, he promised the ruler of Egypt at the time that quote the name of the prince who opens the great maritime canal will be blessed from century to century until the end of time.

Waylon Wong (5:07)

Sold good pitch. Lep Lesseps went back to Europe to sell shares primarily to French individuals for 500 francs. That was roughly the amount of average annual income. Then he told them the story that global trade would benefit European manufacturers. Also at the time, the Brits were doing their colonial thing. And he added that the canal would help the British army should they need to move their troops around the world.

Ricky Mulvey (5:31)

These were the retail investors at the time, betting on a big vision, financially and politically.

Waylon Wong (5:37)

But building the canal would take longer than Lesseffs anticipated. With brutal conditions for the workers, they slept in the open desert and moved rocks with pickaxes and baskets.

Ricky Mulvey (5:47)

This method was not sustainable.

Daron Acemoglu (5:49)

But he was also very lucky with the technology. At the time he started the Suez Canal, the canal could not be completed. He was banking on technological advances in digging and in machinery, at least implicitly doing so. And they came through.

Waylon Wong (6:05)

French industrialists invented a more efficient way to dredge the area. A technological advance that was not a guarantee when the project started.

Daron Acemoglu (6:13)

And he was lucky that he got cooperation from Egyptian authorities, which wasn't clear when he started the project either.

Ricky Mulvey (6:21)

Lesseps needed a heavy amount of confidence and a few lucky breaks.

Daron Acemoglu (6:25)

There was that narrative and persuasion power that really run a little bit ahead of reality.

Waylon Wong (6:31)

The Suez Canal eventually opened in 1869, and the value of shares in the company would go on to quadruple from the time he started selling them and pay an annual dividend of 15% in the late 1800s.

Ricky Mulvey (6:44)

Again, he was lucky. But economic narratives don't always come true. For Lesseps, the trouble came when he sold investors the same story about building the Panama Canal. Investors bought shares in the project, hoping that Lesseps would repeat his Suez success.

Daron Acemoglu (6:59)

The ideas he had were clearly mismatched to the conditions in Panama. And despite that, he was able to raise a huge amount of money because he had the status. And he had a very simple narrative about how this could be done relatively cheaply, in the same way as in the Suez.

Ricky Mulvey (7:15)

One problem. Lesseps claimed that the Panama Canal did not need locks, and locks allow boats to travel across different terrain. The Suez Canal survived without these, as its terrain was relatively level. But around the Panama Canal, the elevation changes, more mountains, valleys, et cetera.

Waylon Wong (7:32)

And Lessevs was a bit too cocky about the building environment, downplaying the tropical illnesses that killed workers and publicly claiming that there would be no future earthquakes in the area after one did occur.

Daron Acemoglu (7:44)

And all of that came crumbling down because the narratives had raced ahead of reality and his designs couldn't work, and money he had raised was insufficient. But there was no way to get it paid back. Looking at history, every new technology, however promising it is, takes a while to spread.

Ricky Mulvey (8:03)

Lesseps had to abandon the Panama Canal project when the company went bankrupt, the US would take over building the canal successfully about 15 years later.

Waylon Wong (8:12)

The Suez and Panama canals are good examples of economic narratives. We're seeing today. A big infrastructure buildout with huge financial and political consequences that may need a few lucky breaks.

Ricky Mulvey (8:24)

They also show that a compelling economic narrative can create profound technological change. And sometimes great returns for investors. But these economic narratives, when they are about the future, often take longer than the promoters claim.

Daron Acemoglu (8:39)

Looking at history, every new technology, however promising it is, takes a while to spread.

Waylon Wong (8:44)

Economic narratives can change your reality. They can even defy gravity for a time like Lessep Suez success. But eventually reality catches up like it did in Panama.

Ricky Mulvey (8:54)

The good news, we have some agency over these stories. We can question them, test them and choose which ones to believe. And I have to ask Waylon, do you have a favorite economic narrative?

Waylon Wong (9:04)

Favorite is kind of doing a lot of work here. But about terrorists are paid by the other country.

Ricky Mulvey (9:09)

Oh, that's a great one. I've got tax cuts Pay for themselves. We're going to ride that baby out.

Sponsor Voice (9:14)

Okay.

Waylon Wong (9:15)

Could be here all day.

Ricky Mulvey (9:20)

This episode was produced by Cooper Katz McKim and engineered by Kwesi Lee. It was fact checked by Ciara Juarez. Kate Concannon is our editor. The indicator is a production of npr.