> >Enrique Diaz-Alvarez wrote:
> >
> >>Well, I am new at glooming and dooming ...
> >>but do you see any way that this can resolve itself
> >>that doesn't involve fairly drastic retrenchment of consumption and
> >>growth together with systematic defaults and debt writeoffs?
> >
> [snip]
> >
> >I ... think you have to entertain the possibility that this really is a
> >long upwave of prosperity, so there may be only a minor adjustment
> >ahead....
> >
> >Doug
>
> [Oh, ye of little faithlessness. Yale economics professor Robert Shiller,
> author of _Irrational Exuberance_, had an interesting column relevant to
> this topic in yesterday's NY Times (posted below). Particularly noteworthy
> was his comment, "We should greatly expand the number and variety of
> securities, and markets for them, to allow people to protect themselves
> against major economic risks." I'm sure there's a catch in what he proposes
> along these lines, but -- despite my instinctual aversion to the marketplace
> -- I have to say the suggestion he lays out is thought-provoking.]
> People could then take short positions corresponding to their own incomes,
> whose value would rise if incomes in their profession fell. They could also
> invest in a truly diversified global portfolio around the world. A doctor in
> Des Moines could take a short position in medical incomes and a short
> position in expensive Des Moines single-family homes, thereby effectively
> insuring against risks to both sustenance and shelter.
>
Well, I have no instinctive aversion to the marketplace, and I think this is
absolutely nuts. Most of Schiller's book consists of a fairly routine
exposition of the current market insanity, historical background on valuations,
and some fairly interesting disquisitions on investor psychology. But this
suggestion that we should create and expand markets is insane. Why would having
more markets result in fewer bubbles? He doesn't say. If anything, it seems to
me that more markets would mean more gambling opportunities, and more
manic-dep[ressive behaviour. Then there is the eternal assumption among his
kind that markets are costless. Stock comissions in the US stock market amount
to 1/3 of profits of publicly traded companies. What would be the fees in a
thinly traded market such as the one described above?
What's the point, anyway? Someone should remind the learned Professor that we *already* have "short positions in labor incomes". It's called "unemployment insurance". Sadly, it's simple, efficient, and fails to provide employment for Goldman Sachs and Dr. Schiller.
-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique