Robert J. Shiller, PhD, presents "Animal Spirits: How Human Behavior Drives the Economy," with SfN President Susan Amara and neuroscientists Antonio Rangel and Wolfram Schultz on November 12 at Neuroscience 2011 in Washington, DC.
Note: Dr. Shiller's remarks begin at 19 minutes.
Saturday, November 19, 2011
Monday, November 7, 2011
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Saturday, October 15, 2011
Making the Most of Our Financial Winter
ON a traditional farm, when winter comes and there’s no need for planting, fertilizing or harvesting, it’s time for infrastructure projects. Farmers fix their barns, build fences or dig wells — important tasks that could be done in any season if there weren’t more pressing jobs to do.
If the winter is unusually long and cold, planting time is delayed and additional projects are undertaken. It’s all very simple and sensible: the idea is not to let people sit around idle, and to use down time to get important things done.
The farm needn’t go into debt to do this. All able-bodied people on the farm are expected to contribute their labor, an imposition we can view as an informal tax. Later, everyone on the farm enjoys the benefits of all that work, by participating in the various benefits — the economic growth — it helps to create.
Read more
If the winter is unusually long and cold, planting time is delayed and additional projects are undertaken. It’s all very simple and sensible: the idea is not to let people sit around idle, and to use down time to get important things done.
The farm needn’t go into debt to do this. All able-bodied people on the farm are expected to contribute their labor, an imposition we can view as an informal tax. Later, everyone on the farm enjoys the benefits of all that work, by participating in the various benefits — the economic growth — it helps to create.
Read more
Friday, September 23, 2011
The Great Debt Scare
It might not seem that Europe’s sovereign-debt crisis and growing concern about the United States’ debt position should shake basic economic confidence. But they apparently have. And loss of confidence, by discouraging consumption and investment, can be a self-fulfilling prophecy, causing the economic weakness that is feared. Significant drops in consumer-confidence indices in Europe and North America already reflect this perverse dynamic.
We now have a daily index for the US, the Gallup Economic Confidence Index, so we can pinpoint changes in confidence over time. The Gallup Index dropped sharply between the first week of July and the first week of August – the period when US political leaders worried everyone that they would be unable to raise the federal government’s debt ceiling and prevent the US from defaulting on August 2. The story played out in the news media every day. August 2 came and went, with no default, but, three days later, a Friday, Standard & Poor’s lowered its rating on long-term US debt from AAA to AA+. The following Monday, the S&P 500 dropped almost 7%.
Apparently, the specter of government deadlock causing a humiliating default suddenly made the US resemble the European countries that really are teetering on the brink. Europe’s story became America’s story.
We now have a daily index for the US, the Gallup Economic Confidence Index, so we can pinpoint changes in confidence over time. The Gallup Index dropped sharply between the first week of July and the first week of August – the period when US political leaders worried everyone that they would be unable to raise the federal government’s debt ceiling and prevent the US from defaulting on August 2. The story played out in the news media every day. August 2 came and went, with no default, but, three days later, a Friday, Standard & Poor’s lowered its rating on long-term US debt from AAA to AA+. The following Monday, the S&P 500 dropped almost 7%.
Apparently, the specter of government deadlock causing a humiliating default suddenly made the US resemble the European countries that really are teetering on the brink. Europe’s story became America’s story.
Saturday, September 3, 2011
The Beauty Contest That’s Shaking Wall St.
THE extraordinary surge of stock market volatility during the last month can’t be explained by conventional means. Yes, hundreds of scholarly papers have tried to predict the size of such swings, and whole markets — like those for futures and options thrive on these movements. Yet we still don’t have a clear, mathematical understanding of volatility’s source.
Last month, market watchers might have thought they were witnessing a gamma ray burst from outer space, with waves of sudden, crazy noise: On Thursday, Aug. 4, the market, as measured by the Standard & Poor’s 500-stock index, fell by almost 5 percent. The next day was quiet, but the following Monday, the index dropped almost 7 percent. In successive days, it rose 4.7 percent, fell 4.4 percent and rose 4.3 percent. Bigger-than normal changes have persisted since, though they haven’t been quite as drastic.
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Last month, market watchers might have thought they were witnessing a gamma ray burst from outer space, with waves of sudden, crazy noise: On Thursday, Aug. 4, the market, as measured by the Standard & Poor’s 500-stock index, fell by almost 5 percent. The next day was quiet, but the following Monday, the index dropped almost 7 percent. In successive days, it rose 4.7 percent, fell 4.4 percent and rose 4.3 percent. Bigger-than normal changes have persisted since, though they haven’t been quite as drastic.
Read more
Monday, August 29, 2011
Raise Those Taxes, Spend That Money
There are two facts about our current economic situation that can no longer be denied: Our economy is in desperate need of government stimulus, and our political system won't abide any increase in our national deficit.
Taken together, the two points seem to bode poorly for the United States. But we shouldn't be too quick to assume a contradiction. Just because stimulus has traditionally been understood as a function of deficit-spending doesn't mean that's how it has to work.
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Taken together, the two points seem to bode poorly for the United States. But we shouldn't be too quick to assume a contradiction. Just because stimulus has traditionally been understood as a function of deficit-spending doesn't mean that's how it has to work.
Read more
Monday, August 15, 2011
Irving Fisher, Debt Deflation and Crises
It is the 100th anniversary of Irving Fisher’s 1911 book The Purchasing Power of Money. But, more important than that, it is a good time, during the current financial turmoil, to reconsider some of his theories again, in light of current events. And I think that some of his theories about variations in the purchasing power of money are very important today, have been underappreciated, and are worthy of considering anew.
In that 1911 book he described a theory of financial crises that tied them to over-borrowing during the expansion phase that preceded the crisis, and to the changes in the purchasing power of money that this expansion causes, then to the collapse in credit and the drop in the price level.
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In that 1911 book he described a theory of financial crises that tied them to over-borrowing during the expansion phase that preceded the crisis, and to the changes in the purchasing power of money that this expansion causes, then to the collapse in credit and the drop in the price level.
Read more
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