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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Creativity, Corporatism, and Crowds

NEW HAVEN – Economic growth, as we learned long ago from the works of economists like MIT’s Robert M. Solow, is largely driven by learning and innovation, not just saving and the accumulation of capital. Ultimately, economic progress depends on creativity. That is why fear of “secular stagnation” in today’s advanced economies has many wondering how creativity can be spurred.

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When a Stock Market Theory Is Contagious

Since Sept. 18, the stock market has fallen more than 6 percent. An abrupt decline last week — after five years of gains — prompted fears that the market may have reached a major turning point.

Has a bear market begun? It’s a great question. The problem is that short-term market movements are extremely hard to forecast. But we live in the present and must try to understand what’s driving markets now, even if it’s much easier to predict their behavior over the long run.

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Parallels to 1937

NEW HAVEN – The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins.

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The Mystery of Lofty Stock Market Elevations

The United States stock market looks very expensive right now. The CAPE ratio, a stock-price measure I helped develop — is hovering at a worrisome level.

I wrote with some concern about the high ratio in this space a little over a year ago, when it stood at around 23, far above its 20th-century average of 15.21. (CAPE stands for cyclically adjusted price-earnings.) Now it is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks.

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Booming Until It Hurts?

NEW HAVEN – In recent months, concern has intensified among the world’s financial experts and news media that overheated asset markets – real estate, equities, and long-term bonds – could lead to a major correction and another economic crisis. The general public seems unbothered: Google Trends shows some pickup in the search term “stock market bubble,” but it is not at its peak 2007 levels, and “housing bubble” searches are relatively infrequent.

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Donors Give More When They Have a Sense of Belonging

With the rise of behavioral economics, my profession is no longer so fixated on the theory that people are relentlessly selfish, striving only to maximize their own pleasure. We know, for example, that work is not just eight daily hours of suffering that people endure to make money for their own benefit. People actually like to work if they see meaning in it, and they can be generous with their money, too.

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