Robert Shiller, who just won the Nobel prize in economics and is best known for describing speculative bubbles, doesn’t think we’re any better able to control those dangerous, irrational price run-ups these days despite all we’ve lived through.
“I don’t think that we have learned, and we are probably more vulnerable to bubbles in the information age,” Shiller said Thursday in a live YouTube broadcast at Yale.
The reason: Twitter and other instant sources of news could tend to heat up irrational behavior.
“There isn’t a science to controlling bubbles,” the Yale economist told interviewer Eric Gershon, our former colleague at The Courant.
Sure, there are measures such as limits on bank loans and rising interest rates that could flatten price curves, but Shiller said, “It’s like trying to control a crowd. If you have an angry mob outside your door what scientific method can you use to control it?”
On the other hand, Shiller, whose 2013 Nobel prize was awarded for his work in describing how human behavior affects markets, does believe we’re getting better at that end of economics. “We’re understanding behavior better so we can make better policy.”
But what policies? Shiller is concerned about income and wealth inequality but he also sees the downside of a sharp rise in the minimum wage. And he’s very skeptical of measures to redistribute current wealth — favoring instead ways to change the rules going forward.
“I’m not saying that we shouldn’t have substantial inequality,” he said, because it provides strong incentives for people to produce and earn. “But I’m worried that inequality is going to get much worse in the future.”
And the housing market? Last year saw a price runup of 13.7 percent in the 20 largest metro areas according to the Case-Shiller index, which he helped develop. It’s not sustainable, he told Gershon, but it’s not a bubble that’s about to burst, either.
His prediction for this year: 5 percent, playing it safe like most economists do. The folks who run the Case-Shiller index predicted that Metro Hartford would rise by 8.3 percent, 5th highest in the nation, from a paltry 2.9 percent in 2013.
Shiller is about to teach a course online on Coursera called “Financial Markets,” which he thinks is a more important topic than ever, considering the rise of financial markets in the developing world.
“For anyone who wants to make a mark on our society…you have to appreciate finance because it is how we get big things done.”