- Hardcover: 304 pages
- Publisher: Princeton University Press (March 20, 2012)
- Language: English
- ISBN-10: 0691154880
- ISBN-13: 978-0691154886
- Product Dimensions: 6.2 x 1 x 9.3 inches
- Shipping Weight: 14.4 ounces (View shipping rates and policies)
- Average Customer Review: 68 customer reviews
- Amazon Best Sellers Rank: #260,161 in Books (See Top 100 in Books)
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Finance and the Good Society Hardcover – March 20, 2012
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Reading his book is like wandering through an interesting garden. . . . [T]he best passages in this book make a persuasive case for a fresh view of an industry that is too glibly demonized. The most promising way to promote the good society, Shiller says, is not to restrain finance but to release it.---Sebastian Mallaby, New York Times Book Review
[R]igorous. . . . Shiller presents a helpful taxonomy, and is convincing in his defence of insurers, financial advisers, and (some) bankers. He is good at relating even some of the more obscure and complex trading strategies to real world problems.---Howard Davies, Times Literary Supplement
Shiller, professor of economics at Yale and author of the best-selling Irrational Exuberance, examines the future of finance in this timely new book. Recognizing the anger of many Americans--as evidenced in part by the rise of the Occupy movement--Shiller suggests that the way to fix our increasingly unequal society is through the 'democratization' and 'humanization' of finance. (PublishersWeekly.com Online Review)
Finance is in need of a little redemption. In his priestly new book, Finance and the Good Society, Mr. Shiller . . . sets out to provide it. He argues convincingly that finance can, should and usually does make the world a better place. . . . As an advocate for the financial system . . . he is wonderfully persuasive because he never plays down the problems. . . . Mr. Shiller reminds us of the profound importance of finance to making our society work.---Robin Harding, Financial Times
From the Inside Flap
"Finance and the Good Society is a provocative call for understanding, then reinventing finance as a force that could create inclusive prosperity. Shiller acknowledges the excesses, inequalities, and unfortunate incentives to sleaziness in the current financial system but says it doesn't have to be that way. An important book for those who seek change."--Rosabeth Moss Kanter, Harvard Business School Professor and author ofSuperCorp: How Vanguard Companies Create Innovation, Profit, Growth, and Social Good
"Drawing from history, economic theory, and keen observation of our economy, Robert Shiller brings a fresh perspective to a big issue--the role of finance in our society. He urges us to overcome the popular misperception that all finance is sleazy and to think broadly about how we can harness its power for the benefit of society as a whole."--Darrell Duffie, Graduate School of Business, Stanford University
"Many MBA students are fascinated by the world of finance but wary of entering it because they perceive it as declining and marred by unethical behavior. This book will show them why finance is and should be a vital part of the good society's solution, rather than its problem. No other book does this with more authority or credibility."--Shlomo Maital, professor emeritus, Technion-Israel Institute of Technology
"This is an overflowing feast of ideas and facts--from Adam Smith to neuroscience to casino design--that will convince intelligent readers who think of finance as an arcane subject that it is not just interesting but even entertaining."--Robert Wade, London School of Economics and Political Science
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For example, when addressing how some financial professionals amass fortunes while people working in the real economy are forced into poverty, he stresses that the problem is one of 'resentment' - the poor resenting the rich - rather than one of injustice or even political instability (the approach that Joseph Stigliz takes). Prof. Shiller discusses "widespread resentment of the concentration of wealth and power" (p. 217) when it would be better to discuss the fairness, justice or even economic utility and political dangers of such concentrations of wealth and power.
Roles and Responsibilities is probably what many readers believe the author is too idealistic on. He describes the benefits that financial actors bestow on the economy by doing their job well. For all who have read New Financial Order, much of the ideas are associated with the ideas first stated there. The author basically makes the case that finance allows us to structure our means to achieve larger longer term goals. Financial industries all have their niche in expertise to help create financial solutions that allow for long term planning and if done properly our ability to structure investment gives us the freedom to plan more intelligently.
Finance and its Discontents discusses much of what frustrates most people as well as recent financial economic issues of importance. He discusses the motives of those in finance, the credit cycle, the ethical issues that arise in short term arms length finance and financial speculation among other things. The author qualifies most issues as being self adjusting and evidence of misdeed by the few not by all. As such it is too dismissive of the failings of finance and agency problems associated with the industry.
All in all, finance and the good society was a well thought out and articulate book. It is perhaps a little idealistic, but the author ends with an important reminding lesson- that wealth is a function of a functioning credit system that allows individuals to be productive in an organized coordinated framework, the "wealth" in the absence of finance and from the spoils of war are basically negligible. Finance is needed and as much as there is injustice that has been uncovered, the system as a whole is definitely required. In terms of how forgiving the book is, it is too forgiving and there is much behavioural science experiments that show that when money is involved people lose creativity (the candlestick problem) and it impacts honesty. As such, putting in place financial solutions for financial actors that remove agency problems should perhaps be studied more by the experts themselves. All in all an enjoyable book, though perhaps with heightened emotions it will be championed or angrily dismissed by many right now.
Shiller breaks his book into two main parts: Part I discusses the roles and responsibilities of various participants in finance while the more interesting Part II covers some of the issues involved in finance that have received criticism like risk-taking, the use of leverage, and the costs of speculation. The overall argument is that strong, responsive and well-regulated financial institutions and well-developed and liquid financial markets are critical for an economy's success, and there's some macroeconomic research that links a strong financial infrastructure to greater economic growth. Finance provides the "lubricant" for the economy's smooth functioning; obviously, financial institutions and markets are required to transfer and price funds from "savings-surplus" economic units to "savings-deficit" economic units. The book is not particularly rigorous in its analysis of financial concepts and applications, but Professor Shiller strongly embraces a multidisciplinary approach to finance and often invokes research from psychology, sociology and neuroscience to illustrate their effect on financial behavior. The author has a socially liberal perspective and is often concerned with inequality in our economy. While he seems to hedge on whether finance contributes to that inequality, he has suggestions from finance itself for mitigating that inequality, e.g., derivatives on industry salary indexes, and fluctuating income tax rates based on the level of inequality in the economy. He's also a big believer in the historic "democratization of finance" (30-year mortgages, mutual funds, ESOPs) and he wants to see more of it in the future.
I think Shiller's defense of finance is largely compelling but I retain several reservations about his arguments for finance's role and contributions: (1) While the overlay of financial institutions and markets over the real economy may contribute to the real economy's growth, I'm concerned that finance also contributes to greater instability and asset bubbles. Shiller's more of a behavioral economist than an efficent markets proponent and has extensively researched the volatility of markets. In the late 1990s, if you could write a 5-page business plan you could get a $100 M high-yield debt issue done; in 2008-2009 if you had valuable collateral and good credit you might get an interview. Shiller himself says that business confidence is the major driving force of the economy and its "analogue" is credit conditions. (2) Since he's a finance professor, it's no surprise that he seems to believe that crafting financial contracts and designing new securities can solve almost all economic vicissitudes, and in furthering the "democratization of finance" he's got a host of ideas for new derivatives for the average person. One mild irritant in the book is that he asserts that cognitive errors caused by conservative biases are the reason why many new derivatives, including some of his own, have not been adopted. While I believe derivatives are a useful tool for risk management, creating a consistent index for new ones can be quite difficult. I write this while the august JPMorgan Chase is writing off $2 billion in derivative positions designed to hedge against slower economic growth because they proved too complex to manage. (3) While we've always needed speculators to provide needed liquidity in our financial markets, why does it appear that the speculators seem to take over markets (particularly derivative markets) from the risk-hedgers and exacerbate the volatility in those markets? I've read that 75% of the volume in the oil futures market is conducted by speculators. The professor doesn't seem to have an answer for this, except maybe to say that finance professionals, including his students, have an "impulse for risk taking".
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I found the first part very absorbing because I learned to see things in a higher...Read more