Robert Shiller: We are not in the clear

By Chrystia Freeland
December 2, 2010

Robert Shiller of Yale University is #48 on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. He tells Chrystia that his big idea is that “finance can serve humanity, especially if it democratizes.” In fact, Shiller argues that the spread of finance is responsible for the super-cycle of economic growth that the world has enjoyed over the past half-century. He disputes the charge that finance is mainly beneficial to a small cabal of bankers in the world’s financial capitals.

Over half the population of the United States uses mutual funds, retirement plans and complex mortgage contracts to manage risk. And, risk-management techniques could be expanded to include more of the uncertainties of middle-class life, he says.

Professor Shiller has two big ideas in the pipeline: a book that will address the popular prejudices against finance and a book to be co-written with George Akerlof on the future of international financial regulation.

Here’s Foreign Policy’s take on what makes him a top global thinker:

If there is one financial indicator that has defined America’s current economic malaise, it’s home sales. And if there is a man who has defined that indicator — literally — it’s Robert Shiller. As the co-creator of the go-to reference on the subject, the S&P/Case-Shiller Index, the economist has become the world’s most important housing guru. A decade after famously warning that the dot-com boom was just so much “irrational exuberance,” he was among the first to predict that the housing bubble would pop, and he has spent the last two years saying that we’re not in the clear yet.

Shiller’s unconventional brand of economics — he cites his wife, a psychologist, as a major influence on his thinking — has left him skeptical of optimistic recovery scenarios drawn from past downturns such as the 1990s Asian crash. As he put it in September, “Hopes that the aftermath of the current crisis will turn out better are still in the category of thoughts, theories, and dreams, not science.”

Find out Shiller’s reading list and more at Foreign Policy.

Posted by Peter Rudegeair.

7 comments

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I think Mr. Shiller is another short time thinker and not a long term planner. Housing is just a symptom of a deeper problem of over taxation of the wage earner and under taxation of Corporations. Corporations have paid to revise the tax laws in their favor for years and are the railroad barons of old. This is no new scenario we are seeing. Just the same old “Greed” that has been around for centuries. How many of the greedy people have been even mentioned in history.

Posted by fred5407 | Report as abusive

If he is such a guru then tell us whom made the margin calls on banks that forced TARP. Sorry to disagree but moneychangers do very little and harm much considering most of what they do could be done by non-profit central banks. S&P is destroying America by outsourcing for an extra 2 points on the bottom line. Over 50% of their income comes from overseas building up communist regimes like China while harming western democracies.

Posted by JamesChirico | Report as abusive

Too bad the S&P/Case-Shiller Index isn’t composed of the correct components…

Posted by charlesv | Report as abusive

The simple truth is that American money managers and the corporations for whom they toil made more than 3 trillion dollars since the collapse while nearly everyone else in America has lost wealth and continues to lose wealth.

The simple truth is that once taxpayers were required to shoulder Wall Street’s toxic assets, the money managers were able to generate enough cash to pay off the solvency loans offered by the American government in just over a year.

The disgust and fury that many Americans harbor regarding the financial system has nothing to do with prejudice. It’s an honest, visceral reaction to the tremendous hardship and adversity that was unfairly brought on by people in power who are still maneuvering to acquire even greater wealth.

Schiller should spend at least a few moments contemplating ethics in finance.

Posted by breezinthru | Report as abusive

Is he on Goldmann Sachs’ payroll?

Posted by Rhino1 | Report as abusive

Wellll, this series is working for me, I think Shiller was an excellent choice and you did an excellent interview.

Finance is increasingly commoditized. It’s a slow process, but it is happening. It happens every time someone doesn’t call his full service broker to buy his latest stock recommendation and instead transfers money from his MMACT to buy an index fund at Vanguard. Between those two choices is now nearly forty years of financial industry history, and a sea change.

Goldman, Soc Gen, et al, have been driven into derivatives and leverage at the level they have because the slack has been pulled out of the rest of investment finance. Markets will never be wholly efficient, but many of the abuses of the New York crowd are about over. The rest of the world is increasingly unimpressed, and fleecing Americans less profitable.

The web is effectively 15 years old, but younger in terms of things like the financial information from sources like Reuters, Morningstar, etc. Now, instead of enrolling at Yale to hear Shiller, I can crank up my old Dell, scan through my email morning update from Reuters, review my Asset Allocation at Vanguard (which, since I use their brokerage service, charges me nothing to trade their increasingly varied ETFs) and eventually select my economic adviser for the day over my second cup of coffee.

Is that not progress?

Posted by ARJTurgot2 | Report as abusive

Corporations do not pay taxes. They pass them on to their customers. If they can’t pass on their tax burden they lay off employees or reduce benefits. The government can instantly invigorate the economy and bring companies back to our shores by eliminating corporate income taxes. Government tax revenue would actually increase, just like it does every time taxes are reduced because more money is left in the hands of the people which results in greater economic activity. The trick is to somehow prevent congress from spending at a greater pace like they did after the Bush tax cuts.

Posted by beofaction | Report as abusive