The Financial Fire Next Time

If we have learned anything since the global financial crisis peaked in 2008, it is that preventing another one is a tougher job than most people anticipated. Not only does effective crisis prevention require overhauling our financial institutions through creative application of the principles of good finance; it also requires that politicians and their constituents have a shared understanding of these principles.

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Why Is Housing Finance Still Stuck in Such a Primitive Stage?

The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has followed the financial crisis of 2007-9 has not been focused on improving the risk management of individual homeowners. This paper lists a number of barriers to housing finance innovation, and in light of these barriers, the problems of some major innovations of the past and future: self-amortizing mortgages, price-level adjusted mortgages (PLAMs), shared appreciation mortgages (SAMs), housing partnerships, and continuous workout mortgages (CWMs)

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Is Economics a Science?

I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?

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Robert Shiller: A Skeptic and a Nobel Winner

Robert J. Shiller, a professor at Yale, learned on Monday that he had won the Nobel Memorial Prize in Economic Science, along with Lars Peter Hansen and Eugene F. Fama of the University of Chicago. The Nobel committee described Professor Shiller as a founder of the field of behavioral finance, an innovator in incorporating psychology into economics and a pioneering analyst of speculative bubbles in the stock and real estate markets.

He is also one of a group of eminent economists who write the Economic View column for Sunday Business, and has contributed 60 of those columns since August 2007. As the editor of that column, I have talked to him often about his work, and on Wednesday, he called me from the airport en route to a lecture at the Dutch central bank in Amsterdam. Here is an edited, condensed version of that conversation.

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Housing Market Is Heating Up, if Not Yet Bubbling

HOME prices have been rising rapidly, so much so that there is talk that we are entering another national bubble.

In fact, according to the S.& P./Case-Shiller Composite-10 Home Price Index, which Karl Case of Wellesley College and I developed, home prices in the United States were up 18.4 percent in real, inflation-corrected terms in the 16 months that ended in July. During the housing bubble that preceded the 2008 financial crisis, the largest 16-month increase wasn’t much bigger: 22.7 percent, for the period ended in July 2004. 

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The Best, Brightest, and Least Productive?

NEW HAVEN – Are too many of our most talented people choosing careers in finance – and, more specifically, in trading, speculating, and other allegedly “unproductive” activities?

In the United States, 7.4% of total compensation of employees in 2012 went to people working in the finance and insurance industries. Whether or not that percentage is too high, the real issue is that the share is even higher among the most educated and accomplished people, whose activities may be economically and socially useless, if not harmful.

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Why Innovation Is Still Capitalism’s Star

CAPITALISM is culture. To sustain it, laws and institutions are important, but the more fundamental role is played by the basic human spirit of independence and initiative.

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