Common Plots of Economic History

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According to author Christopher Booker, there are 7 basic plots that encompass the history of storytelling:

  1. Overcoming Monsters
  2. Rags to Riches
  3. The Quest
  4. Voyage and Return
  5. Rebirth
  6. Comedy, and
  7. Tragedy.

The point is not that all stories are the repetitive in nature. The point is that "plots that catch readers’ attention are psychological common denominators among all of us, so the seven plots show up in stories told by cultures that have little in common." According to Morgan Housel, this notion of common plots can be applied to many more fields, including economic history.

People tend to want the same economic things – security, power, admiration, fulfillment. They tend to use the same tactics to get those things – work, risk, incentives, persuasion, theft, control. And they tend to fall for the same flaws in pursuit of those things – overconfidence, pessimism, no room for error, underestimating how fast things can change, etc.Economic history may be complicated. But the common denominators of human behavior means there are, if you look, only a handful of broad story plots that pop up again and again, throughout history and around the globe, connecting the economic experiences of people who otherwise seem to have little in common.

Housel's plots for economic theory:

  1. A good idea taken to the furthest extreme becomes indistinguishable from a terrible idea.
  2. A competitive advantage that once looked invincible is squandered.
  3. Future progress is underrated because past progress is misunderstood.
  4.  Surprises are constant, and not necessarily because we’re bad at predicting, but because everything important in the economy is driven by power laws where a tiny portion of things are responsible for the majority of outcomes, and it’s impossible for any one forecaster to track every moving part.
  5. The ability to believe things that aren’t true or haven’t happened yet is the foundation of all economic growth and decline.

Through stories about railroads, Sears, America in the 90s, individuals that have shaped the world as we know it and hope Housel paints a convincing narrative. A worthwhile read.

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