(I'm using up yesterday's quota of messages and am about to get off the list tomorrow anyway).
For the record, Shiller is one of those who advocates the "behavioral finance" approach that rejects the idea that people behave rationally in economics. He has been one of the more astute and perceptive analysts of speculative behavior in financial markets, dating back to a very important paper back in 1981. He is not at all a crackpot or a fool, although I am not much of a fan of the insurance proposals in his latest book. However, his earlier books, Market Volatility and Irrational Exuberance are both excellent, almost as good as Doug Henwood's Wall Street, with Irrational Exuberance hitting the shelves at the very peak of the stock market bubble in early 2000, which was mighty good for his sales as it called the crash as it hit. Barkley Rosser
----- Original Message -----
From: Bill Bartlett
Sent: Wednesday, June 11, 2003 2:17 AM
Subject: Re: [lbo-talk] Socialism by any other name?
At 10:48 PM -0700 10/6/03, Gar Lipow wrote:
Bill Bartlett <billbartlett at enterprize.net.au> Forwarded
Shiller could be a crackpot writing letters to newspapers. In fact, he's a professor of finance at Yale University.
The two are not neccesarily mutually exclusive.
Very true. But I thought the sentence following that was more intriguing:
"He's the celebrated author of Irrational Exuberance, in which he pooh-poohed the New Economy and warned that Wall Street's boom couldn't last."
Gee, you mean he actually PREDICTED that a stock market boom would eventually come to an end? Wow, that puts him right up there with the prophets, who would have ever thought that prediction might come true.
But it probably says more about the journalist than the interestingly named Shiller, who also seems oblivious to the supposed "endowment effect", in his reported proposal for "livelihood insurance". Gitten reported on the proposal thus:
"Such "livelihood insurance" would require the development of many
indexes for the growth in average salaries paid to people in
particular occupations. So the policy for an employed male architect,
for instance, might involve him being reimbursed by the insurance
company for half the gap between his salary and the average salary
for architects. This would leave him with an incentive to work hard
in his career and thus would overcome the "moral hazard" problem that
comes with all insurance - the temptation to stop trying once you're
covered."
Of course this whole "moral hazard" crap assumes that the only motivation people could ever have for engaging in useful work is money, which is ridiculous on the face of it. But even given (for the sake of argument) that it was true - the "endowment effect" doctrine tells us that the said architect will value the insurance payout of 50% of the difference between his low salary (which he already has) far more that the 100% which he could get by working hard. So the gap between insurance guaranteed income and potential income for busting your gut and grovelling to the employer won't be enough of a disincentive to maintain labour discipline. Any such livelihood insurance undermines thus the essential premise of the capitalist system - the threat of hunger and want if you don't toe the bosses' line.
I'm sure this Shill fellow is well intentioned, but he simply doesn't know his arse from his elbow. Hasn't got a clue. Tragic, but that's professional economists for you.
Bill Bartlett
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