Two cheers for financial innovation

January 7, 2012

Protests against Wall Street and the U.S. financial system are hanging over an annual gathering of economists and social scientists in Chicago. Yale economist Robert Shiller offered two cheers for capitalist finance, saying that while the U.S. free market system has contributed to higher living standards, the vehemence of the recent public outcry points to a need for greater democratization. This is how he put it in a speech:

When speculation squashes innovation

October 28, 2011

Paul Volcker famously joked in the wake of the 2008 credit crisis that the most important financial innovation of the last few decades had come not from Wall Street’s fancy footwork but rather the engineering acumen that created the ATM. A paper published by the National Bureau for Economic Research lends some academic credence to Volcker’s view. In particular, the research of Alp Simsek, a Harvard economist, finds the very uncertainty that esoteric new securities introduce into financial markets eats away at benefits arising from greater credit availability: