Finance and the Good Society

In wanting to understand more about the financial crisis that began in 2008, I listened to Dr. Robert Shiller's lectures in a course titled Financial Markets through Yale University and read his book "Finance and the Good Society."

 

For the past four years I’ve listened to commentary on television and read newspaper and magazine articles, but still didn’t feel I had a clear understanding of exactly what happened to create the global financial crisis. Shiller, a likeable and well-versed economist, gave the most understandable and compelling explanations, along with many anecdotal stories, I've heard.

He makes it clear that it was a combination of things – many of which, according to the so-called experts, were never supposed to happen. The overall picture is often blurry and confusing to most of us, but Shiller does a good job of explaining the breakdown of a number of groups – banking, housing, and financial markets here in the United States and abroad. He also does a good job making his case for why government intervention was necessary and how laws and regulation are the few things that will work to keep another financial crisis of the same magnitude from happening again.

Many people think that if left alone and to their own devices, businesses and individuals will make good choices and do what is right for society as a whole. Shiller gives compelling examples about how the opposite often happens, making government oversight one of the few viable solutions to the inevitable fallout of future markets.

"Financial capitalism is far from a perfect system, and one of its fundamental problems is that it is vulnerable to booms and busts, recessions and depressions. These events have happened so many times in the past that one can predict with certainty they will happen again. So it is widely appreciated that we need policy makers whose duty is to counteract such instabilities and reduce their impact."

He also calls on the wealthy to become more compelled to think about the collective good with their mass fortunes.

"It is not that those successful in business are necessarily smarter than other people. In fact they may be relatively insensitive to the real needs of the poor and, because of their specialization in business, to many intellectual pursuits as well. It is rather that they are specialized in a particular kind of intelligence: the ability to put human talents and business opportunities together. This same talent can and should be used for human benefit."

The book mimics much of the lectures, and I probably took more from it because it doesn’t include the many formulas and equations that were a major part of the lectures. It was a quick and informative read for someone more inclined to the arts than the numbers game.