From Publishers Weekly
Shiller is best known for arguing, as he did in Irrational Exuberance, that stock market movements do not reflect underlying economic reality and that the volatility of the market makes the financial system unstable. It is therefore a surprise to find him advocating vast expansion of financial derivative markets to reduce the economic risk faced by individuals and countries. According to Shiller, governments should swap 10% or more of their gross domestic product with other countries and administer income swaps among entire generations. Individuals should manage risk by trading in new financial instruments based on the lifetime income of their profession, the value of homes in their area or economic statistics like the unemployment rate or inflation rate. Money, he says, will be replaced by "indexed units of account" tied to things like wage rates and commodity prices. People will carry transponders to report on their every activity, with the results stored in "global risk information databases," containing all personal information, including genetic data but protected against unauthorized access. In this way, the government can eliminate the underground economy and tax evasion and individuals will enjoy more economic security. The author admits people don't think they want this additional security, but he advocates "psychological framing" to change their viewpoint. The book is certain to be controversial. Some will see a visionary, high-tech combination of the best of capitalism and socialism. Others will be reminded of Brave New World and 1984, with privacy, freedom and adventure traded for a totalitarian mediocrity founded on constant monitoring and propaganda.
Copyright 2003 Reed Business Information, Inc.
Audaciously taking well-established economic ideas to their logical extreme, Shiller calls for a revolution in the management of risk, both individual and collective. While markets are currently used to hedge away a small number of risks—health problems, rising commodity prices, volatile currencies—Shiller believes that they could also limit risks like falling house prices and rising unemployment. In the future, countries might buy and sell futures contracts based on their own G.D.P., and individuals could insure themselves against choosing the wrong profession. There is a mad-scientist quality to some of these proposals, and the technical and political obstacles to their implementation seem insurmountable. Still, Shiller's ambition is exhilarating, and gives his work something that most business books lack: a deep sense of how economic ideas might transform people's everyday lives.
Copyright © 2005 The New Yorker
--This text refers to the