The stories we spread about the economy have the power to shape it— for better or worse—in real life, finds Howard Davies

Narrative Economics: How Stories Go Viral and Drive Major Economic Events

by Robert J Shiller (Princeton University Press, £20)

There is an oft-repeated story about the runup to the Wall Street crash of 1929 in which Joseph Kennedy, JFK’s father, stops to get his shoes cleaned in lower Manhattan, and is shocked to find that the shoeshine boy is offering him tips on which stocks to buy. “If a shoeshine boy can predict where this market is going to go, then it’s no place for a man with a lot of money to lose,” he is reported as saying, before selling his holdings and avoiding the losses others suffered.

Unfortunately, like many appealing stories, this one turns out to be apocryphal. Kennedy does seem to have avoided the worst of the slump by well-timed share sales, but the Nobel laureate Robert Shiller, who has spent much of the last few years researching the stories, true and false, that drive economic events, can find no contemporary reference to his interaction with a shoeshine boy. The first mention of the story does not appear in print until 1957, and then it was attributed to the American financier Bernard Baruch, a friend of Winston Churchill.

We have all read, too, that the Wall Street crash led to a spate of suicides as ruined investors threw themselves off high buildings in despair. Except that it seems they did not. The suicide rate in New York was higher during the summer of 1929 when the market was rising strongly, than it was in the autumn after the crash.

“We have all read that the Wall Street crash led to a spate of suicides. Except it seems they did not”

In this country we are now sadly familiar with halfremembered facts and politically-motivated myth-making, whether about Brussels directives on straight bananas or the circumstances in which kippers may or may not be shipped by the Royal Mail. In spite of the worthy work of a number of fact-checking websites, we find it hard to keep up with what is fact and what is fable, where is Ruth and where is Mabel, as Alan Bennett put it. By force of repetition, £350m a week (or a month, or even a day, whatever) sent to Brussels has inflated our thinking about the cost of EU membership and the sums that could otherwise go to fund the NHS. Trenchant letters putting the record straight from the chair of the official statistics watchdog cut no ice at all.