Economist Who Warned of ‘Self-Fulfilling Prophecy’ Says Dangerous Epidemics Are Gripping the Markets

Robert Shiller, the Nobel Prize-winning economist who warned last year that a self-fulfilling prophecy could end Wall Street’s longest bull run in history, now says the current market meltdown brought about by fears of the coronavirus is just getting started.

In an interview on CNBC’s Trading Nation, Shiller explains why he believes the fear over the coronavirus outbreak that’s hammering the stock market has not yet peaked.

“We haven’t gotten very far into it yet. So, the potential for market disruption because of a scary narrative is quite high.”

Shiller says the narrative is especially scary because it’s difficult to quarantine people and prevent them from spreading the virus since those already infected and contagious can be asymptomatic.

A recognized authority in the field of behavioral economics, which examines how emotional, social and psychological factors influence financial decisions, Shiller predicts that a recession is likely to happen. He also believes it’s a tumultuous time for the economy as the world faces two dangerous epidemics: one is the epidemic of the coronavirus, and the other, an epidemic of fear.

“I don’t like to be a doomsday purveyor. I think that it may turn out to be overrated.

What we have now is really two epidemics. We have an epidemic of the coronavirus, but we also have an epidemic of fear based around a narrative that is not necessarily keeping up with scientific reality. And, this narrative has been quite striking.

I think that we’re into some tumultuous period, whether it’s up or down, it’s a dangerous time for the stock market.”

In March of 2019, Shiller, a Yale University economics professor and author of Narrative Economics: How Stories Go Viral and Drive Major Economic Events, said there was a 50% chance that a recession could occur in the next 18 months, amid growing worries of an economic downturn. At that time, there was no known event that could set off a recession.

In December, China reported the first cases of coronavirus. The disease, which has spread globally, has set-off a massive market sell-off.

The Dow Jones Industrial Average plunged by 7.79% on Monday, dropping 2,000 points in the stock market’s worst one-day performance since 2008. The S&P 500 and Nasdaq Composite also saw their worst day in 11 years as they sank by 7.6% and 7.29%, respectively.

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