As a former resident of Las Vegas, I found the idea presented by Akerlof and Shilling that “stories” are exceedingly consequential in both human life, in general, and the functioning of our economy, in particular, to be very useful in assessing why the city was so affected by the economic downturn. The “story” of possibility and continuing growth was incredibly powerful there, and it was one that is wrapped up in the history of our state.
Nevada’s nickname, “The Silver State,” derives from the silver rush that occurred in the mid-1800s. People were drawn by the possibility of a quick fortune…ignoring the odds of success and physical manifestations of failure (Google “Nevada ghost towns”). While mining persists, the center of gravity shifted from mineral wealth to gaming. And as a result of this “gaming-rush,” the population of Las Vegas expanded by 41.8% from 2000 to 2010 (US Census).
These “pioneers” were driven by the story of cheap real estate that would continue to increase in value at larger and larger rates each year. This meant continual upward mobility. My two-bedroom home would become a McMansion in a few years time. Meanwhile, I could invest in additional properties, refinance those homes, and use that money as my personal piggy bank.
In 2008, we found out that this story was fundamentally flawed, and many of those who invested heavily in it lost everything. But stories are powerful. People do not give them up easily. One might think that the economic downturn would force the city to reassess the basis of its economy (i.e., growth) and forge a new path. But this does not seem to be the case. A logical question might be: should 2+ million people live in a desert valley that is almost wholly reliant on a water source (the Colorado river) that is being quickly depleted? If not, what does that mean for our city and for the economic drivers of our economy?
Unfortunately, the old story still seem to carry much weight. Short of a cataclysmic event (which seems to become more and more probable, see: http://slate.me/1umudLh), what must happen for that story to change?