'Talking Ourselves Into A Recession': Robert Shiller, Catherine Wood Talk Disruptive Innovation, Narrative Economics

Robert Shiller, a Nobel Prize in Economics recipient and the Sterling Professor of Economics at Yale University, joined ARK Invest CEO Catherine Wood in a discussion this week about the embrace of disruptive technology in today's narrative-driven economy at the Forbes 30 Under 30 Summit in Detroit. 

Shiller: Narratives Resemble The Great Depression

A sort of fear bubble has emerged, with asset managers drawing upon indices, fixed income and private market assets for alpha, Shiller said. 

“Hardly anyone remembers; right about 1929 — the peak of the stock market — people started to worry about technological unemployment,” said Shiller, referencing Stuart Chase’s book "Men and Machines."

"[Chase] said, ‘we are now in a turning point in history. We are entering the power age … and we’re going to be seeing massive unemployment.'" 

A Cause For Concern? 

The uncertainty surrounding job security and technology is unsubstantiated, Wood said. 

She pointed to a 2013 Oxford University paper that inaccurately concluded that 47% of American jobs would be axed by automation over the next decade.

Wood said she approached the study from a different perspective: productivity.

"We determined that by the year 2035, the United States would create $12 trillion more than it otherwise would have without automation. So, instead of being a $28-trillion economy, we’re going to be a $40-trillion economy." 

Bitcoin Has An Old History

Proposals for electric money date to the Great Depression, Shiller said. 

“They wanted to change the name of our currency to the watt.”  

The idea that underlies Bitcoin dates to the 1970s and the publication of the RSA cryptosystem algorithm, Shiller said. 

"It’s a system of encoding that involves a private and public key." 

Wood said that in the 10 years since Bitcoin has been in existence, the underlying technology hasn’t been compromised, making it the perfect answer to the issue of wealth confiscation.

"I think we’re seeing many countries with corrupt governments and regimes that are crushing the purchasing power and the wealth of individuals. This is the antidote to that." 

A lack of monetary control has led to the rise of economic instability, she said, adding that the fact that Bitcoin has remained in existence and grown in market share makes it the premier reserve currency of the digital asset ecosystem.

Recession Ahead? 

The conversation morphed into a discussion about yield curve inversion and the narrative that the metric predicts recessions. 

“I think it predicts recessions because people think it predicts recessions,” Shiller said of the yield curve. 

Wood echoed Shiller’s remarks and said inversions as steep as 500 basis points have occurred during periods of strong economic growth.

“Part of the reason we had the Great Depression is people were aware of crowd psychology. Every day, they were watching the stock price index as a barometer of the health of the economy, and that made it more volatile.”

The Meaning Of True Value 

The conversation shifted to IPOs driven by mainstream hype — a problem that leads to bubbles.

Investors define what value looks like, Wood said, giving examples from her own experience in picking investments.

Five innovation platforms exist, she said: 

• DNA sequencing. 
• Collaborative robots.
• Energy storage, such as electric and autonomous vehicles.
• Artificial intelligence.
• Blockchain technology.

Wood said she filters through those platforms and looks for the presence of the following:

• Broad-based innovation that cuts through global economic sectors.
• A declining cost curve.
• A launching pad for further innovation.

Photo by Bengt Nyman via Wikimedia.