Don’t Assume a Fed Action Will Move the Market

Humans don’t behave like computers. That makes life interesting, but it has a serious downside for economists: It is exceedingly difficult to predict the short-term directions of major markets, even when events seem to be entirely predictable.

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Crowdfunding or Crowdphishing?

NEW HAVEN – If one were seeking a perfect example of why it’s so hard to make financial markets work well, one would not have to look further than the difficulties and controversies surrounding crowdfunding in the United States. After deliberating for more than three years, the US Securities and Exchange Commission (SEC) last month issued a final rule that will allow true crowdfunding; and yet the new regulatory framework still falls far short of what’s needed to boost crowdfunding worldwide.
 

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Faith in an Unregulated Free Market? Don’t Fall for It

Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone.

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Fraud, Fools, and Financial Markets

NEW HAVEN – Adam Smith famously wrote of the “invisible hand,” by which individuals’ pursuit of self-interest in free, competitive markets advances the interest of society as a whole. And Smith was right: Free markets have generated unprecedented prosperity for individuals and societies alike. But, because we can be manipulated or deceived or even just passively tempted, free markets also persuade us to buy things that are good neither for us nor for society.

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Coming Soon: New Book by Akerlof and Shiller

Ever since Adam Smith, the central teaching of economics has been that free markets provide
us with material well-being, as if by an invisible hand. In Phishing for Phools, Nobel Prize–winning economists George Akerlof and Robert Shiller deliver a fundamental challenge to this insight, arguing that markets harm as well as help us. As long as there is profit to be made, sellers will systematically exploit our psychological weaknesses and our ignorance through manipulation and deception. Rather than being essentially benign and always creating the greater good, markets are inherently filled with tricks and traps and will “phish” us as “phools.”

Phishing for Phools therefore strikes a radically new direction in economics, based on the intuitive idea that markets both give and take away. Akerlof and Shiller bring this idea to life through dozens of stories that show how phishing affects everyone, in almost every walk of life. We spend our money up to the limit, and then worry about how to pay the next month’s bills. The financial system soars, then crashes. We are attracted, more than we know, by advertising. Our political system is distorted by money. We pay too much for gym memberships, cars, houses, and credit cards. Drug companies ingeniously market pharmaceuticals that do us little good, and sometimes are downright dangerous.

Phishing for Phools explores the central role of manipulation and deception in fascinating detail in each of these areas and many more. It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation. At the same time, the book tells stories of individuals who have stood against economic trickery—and how it can be reduced through greater knowledge, reform, and regulation.

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Rising Anxiety That Stocks Are Overpriced

Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent — the official definition of a “correction,” with similar or greater drops in other countries.

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The Housing Market Still Isn’t Rational

Home prices have been climbing. They have risen 27 percent nationally since 2012, even more in places like San Francisco. But why worry? If you accept the efficient markets theory — and believe that real estate is an efficient market — then these prices are based on “new information,” even if you don’t know what that information is.

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The Mirage of the Financial Singularity

NEW HAVEN – In their new book The Incredible Shrinking Alpha, Larry E. Swedroe and Andrew L. Berkin describe an investment environment populated by increasingly sophisticated analysts who rely on big data, powerful computers, and scholarly research. With all this competition, “the hurdles to achieving alpha [returns above a risk-adjusted benchmark – and thus a measure of success in picking individual investments] are getting higher and higher.”

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What to Learn in College to Stay One Step Ahead of Computers

Computers and robots are already replacing many workers. What can young people learn now that won’t be superseded within their lifetimes by these devices and that will secure them good jobs and solid income over the next 20, 30 or 50 years? In the universities, we are struggling to answer that question.

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Inspiring Economic Growth

NEW HAVEN – In his First Inaugural Address, during the depths of the Great Depression, US President Franklin Delano Roosevelt famously told Americans that, “The only thing we have to fear is fear itself.” Invoking the Book of Exodus, he went on to say that, “We are stricken by no plague of locusts.” Nothing tangible was causing the depression; the problem, in March 1933, was in people’s minds.

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How Scary Is the Bond Market?

NEW HAVEN – The prices of long-term government bonds have been running very high in recent years (that is, their yields have been very low). In the United States, the 30-year Treasury bond yield reached a record low (since the Federal Reserve series began in 1972) of 2.25% on January 30. The yield on the United Kingdom's 30-year government bond fell to 2.04% on the same day. The Japanese 20-year government bond yielded just 0.87% on January 20.



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Anxiety and Interest Rates: How Uncertainty Is Weighing on Us

Anxiety and uncertainty are weighing on individuals even where the overall economy is growing.

Some of this angst is the fallout from advances in information technology. The Internet, ubiquitous computing, robotics, 3-D printers and the like are wonderful advances, yet they may also be personal threats: For some, the technologies may eliminate our jobs or potential future jobs, or make them less lucrative. For others, they may bring new riches.

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What Good Are Economists?

NEW HAVEN – Since the global financial crisis and recession of 2007-2009, criticism of the economics profession has intensified. The failure of all but a few professional economists to forecast the episode – the aftereffects of which still linger – has led many to question whether the economics profession contributes anything significant to society. If they were unable to foresee something so important to people’s wellbeing, what good are they?

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