Finance and the Good Society

by Robert J. Shiller

Overview

Nobel Prize-winning economist explains why we need to reclaim finance for the common good

The reputation of the financial industry could hardly be worse than it is today in the painful aftermath of the 2008 financial crisis. New York Times best-selling economist Robert Shiller is no apologist for the sins of finance—he is probably the only person to have predicted both the stock market bubble of 2000 and the real estate bubble that led up to the subprime mortgage meltdown. But in this important and timely book, Shiller argues that, rather than condemning finance, we need to reclaim it for the common good. He makes a powerful case for recognizing that finance, far from being a parasite on society, is one of the most powerful tools we have for solving our common problems and increasing the general well-being. We need more financial innovation—not less—and finance should play a larger role in helping society achieve its goals.

Challenging the public and its leaders to rethink finance and its role in society, Shiller argues that finance should be defined not merely as the manipulation of money or the management of risk but as the stewardship of society's assets. He explains how people in financial careers—from CEO, investment manager, and banker to insurer, lawyer, and regulator—can and do manage, protect, and increase these assets. He describes how finance has historically contributed to the good of society through inventions such as insurance, mortgages, savings accounts, and pensions, and argues that we need to envision new ways to rechannel financial creativity to benefit society as a whole.

Ultimately, Shiller shows how society can once again harness the power of finance for the greater good.

Product Details

ISBN-13:	9780691154886
Publisher:	Princeton University Press
Publication date:	03/20/2012
Pages:	304
Product dimensions:	6.40(w) x 9.30(h) x 1.20(d)

About the Author

Robert J. Shiller is the author of Irrational Exuberance and The Subprime Solution, and the coauthor, with George A. Akerlof, of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (all Princeton). He is the Arthur M. Okun Professor of Economics at Yale University.

Table of Contents

Preface vii

Introduction: Finance, Stewardship, and Our Goals 1

Part One: Roles and Responsibilities

1. Chief Executive Offi cers 19

2. Investment Managers 27

3. Bankers 37

4. Investment Bankers 45

5. Mortgage Lenders and Securitizers 50

6. Traders and Market Makers 57

7. Insurers 64

8. Market Designers and Financial Engineers 69

9. Derivatives Providers 75

10. Lawyers and Financial Advisers 81

11. Lobbyists 87

12. Regulators 94

13. Accountants and Auditors 100

14. Educators 103

15. Public Goods Financiers 107

16. Policy Makers in Charge of Stabilizing the Economy 111

17. Trustees and Nonprofi t Managers 119

18. Philanthropists 124

Part Two: Finance and Its Discontents

19. Finance, Mathematics, and Beauty 131

20. Categorizing People: Financiers versus Artists and Other Idealists 135

21. An Impulse for Risk Taking 139

22. An Impulse for Conventionality and Familiarity 143

23. Debt and Leverage 151

24. Some Unfortunate Incentives to Sleaziness Inherent in Finance 159

25. The Signifi cance of Financial Speculation 168

26. Speculative Bubbles and Their Costs to Society 178

27. Inequality and Injustice 187

28. Problems with Philanthropy 197

29. The Dispersal of Ownership of Capital 209

30. The Great Illusion, Then and Now 219

Epilogue: Finance, Power, and Human Values 231

Notes 241

References 257

Index 273

What People are Saying About This

From the Publisher

"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 of SuperCorp: 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

Editorial Reviews

"Shiller, author of The Subprime Solution and Irrational Exuberance and an originator of the Case-Shiller Home Price Indices, has written a timely, readable book, the product of teaching finance for 25 years. Unlike so many recent books stimulated by the financial disruptions that started in 2007, it does not vilify the current system of financial capitalism but instead attempts to inform readers. . . . Judging from the book, Shiller's students are very fortunate."

Choice

"Extensively citing history, philosophy, psychology, neuroscience, and behavioral science, the book convincingly calls for better fiscal education and claims that greater knowledge will lessen resentment and inequality, improve comprehension, and facilitate 'the good society.' An excellent resource for readers interested in understanding and improving financial capitalism."

Library Journal

"Shiller has sought to prove what most of us were prepared to assume: finance may not be the great saviour that will create good society in the Utopian sense, but a society that truly seeks to be good will find in finance a willing partner that can help it achieve its goals. If you are looking for a social revolution, you will not find it in Finance and the Good Society but if you are planning a social revolution you should definitely read this book first."

Financial World

"In Finance and the Good Society, the Yale economist comes to praise finance, not to bury it. . . . After examining the often unappreciated value contributed by finance professionals, Shiller reminds us that finance has already helped build a better world through inventions like amortizing mortgages, and mutual funds."

CFO Magazine

"[D]eeply intelligent and elegantly argued."

BizEd

"[F]inance and the Good Society is so contrarian as to be shocking—all the more so because its author, Robert Shiller, is no head-in-the-sand capitalist nor a highly paid Wall Street shill. . . . [A]t a time . . . when fear is curbing financial innovation and the political climate could 'prevent financial capitalism from progressing in ways that could benefit all citizens,' Mr. Shiller's sensible message demands urgent attention."

Economist

Robert J. Shiller, Co-Winner of the 2013 Nobel Prize in Economics

"Winner of the 2012 Business Book Award in Finance & Economics, 800-CEO-READ"

"Winner of the 2012 PROSE Award in Business, Finance & Management, Association of American Publishers"

One of Choice's Outstanding Academic Titles for 2012

"Winner of the 2013 Bronze Medal Book Award in Economics, Axiom Business"

Shortlisted for the 2012 Best Finance Books in China, Caijing Magazine

"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

From the Publisher

"What present would you give to the man who stands on the threshold of the élysée Palace—a man who has almost everything? A copy of Robert Shiller's Finance and the Good Society might be a timely present. . . . [A] stimulating book."

European Voice

"[F]inance and the Good Society is so contrarian as to be shocking—all the more so because its author, Robert Shiller, is no head-in-the-sand capitalist nor a highly paid Wall Street shill. . . . [A]t a time . . . when fear is curbing financial innovation and the political climate could 'prevent financial capitalism from progressing in ways that could benefit all citizens,' Mr. Shiller's sensible message demands urgent attention."

Economist

Robert Shiller deserves much praise for trying to restore balance to public discussion of contemporary finance. His task is not easy, but he carries it off clearly, succinctly and with great hope for the possibilities of reformed finance. His focus on 'the good society' is absolutely correct: to build the better society that philosophers and social scientists have sought for ages, we badly need a financial system that works, not only for big business but for all of us.

International Affairs - Joel Campbell

What is great about the book, and surprising I suppose, is that Dr. Shiller spends a great deal of time explaining why the practice of modern finance is mostly good. . . . Honestly, it's worth the price of the book just to read an outstanding explanation of why Derivatives Providers, Financial Engineers, and Mortgage Securitizers aren't inherently evil. . . . [T]his is an even-handed book that makes a distinction that has been rarely made in the post-crisis witch-hunt: Hate the sin, love the sinner. The people involved in finance are, in general, good people and the structures, in general, work well most of the time. Improvements can be made, and when the serial crises are over in a few years, hopefully we can discourse intelligently on these improvements. Dr. Shiller has made a good contribution to that discourse with this book.

SeekingAlpha - Inflation Trader

Shiller argues his case skilfully and persistently, and with a wealth of quirky and interesting examples.

Management Today - Lord Skidelsky

Shiller has won a deserved reputation as being among the world's most prescient analysts of financial excesses. When he defends finance, we should pay attention.

Prospect - Martin Wolf

If François Hollande really believes finance is an enemy of society, he should read Robert J. Shiller.

European Voice - Tim King

[W]hile many have damned the finance industry for rampant self-interest and a tendency to prey on people's flawed thinking for its own benefit, Shiller wants to overhaul it to make sure finance serves the greater good. The key, he says, in his new book, Finance and the Good Society, is to democratize finance—giving the rest of us access to the tools and techniques that rich folks have used for decades to raise capital and protect themselves from risk.

Seattle Times - Drew DeSilver

[S]hiller comes across as pragmatic as well as visionary, explaining how much financial capitalism has done for society and how much more it could do if harnessed for the common good.

Bloomberg News - James Pressley

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.

Financial Times - Robin Harding

[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 . . .

Times Literary Supplement - Howard Davies

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.

New York Times Book Review - Sebastian Mallaby

Robert Shiller deserves much praise for trying to restore balance to public discussion of contemporary finance. His task is not easy, but he carries it off clearly, succinctly and with great hope for the possibilities of reformed finance. His focus on 'the good society' is absolutely correct: to build the better society that philosophers and social scientists have sought for ages, we badly need a financial system that works, not only for big business but for all of us.
— Joel Campbell

International Affairs

What is great about the book, and surprising I suppose, is that Dr. Shiller spends a great deal of time explaining why the practice of modern finance is mostly good. . . . Honestly, it's worth the price of the book just to read an outstanding explanation of why Derivatives Providers, Financial Engineers, and Mortgage Securitizers aren't inherently evil. . . . [T]his is an even-handed book that makes a distinction that has been rarely made in the post-crisis witch-hunt: Hate the sin, love the sinner. The people involved in finance are, in general, good people and the structures, in general, work well most of the time. Improvements can be made, and when the serial crises are over in a few years, hopefully we can discourse intelligently on these improvements. Dr. Shiller has made a good contribution to that discourse with this book.
— Inflation Trader

SeekingAlpha

Shiller argues his case skilfully and persistently, and with a wealth of quirky and interesting examples.
— Lord Skidelsky

Management Today

Shiller has won a deserved reputation as being among the world's most prescient analysts of financial excesses. When he defends finance, we should pay attention.
— Martin Wolf

Prospect

[W]hile many have damned the finance industry for rampant self-interest and a tendency to prey on people's flawed thinking for its own benefit, Shiller wants to overhaul it to make sure finance serves the greater good. The key, he says, in his new book, Finance and the Good Society, is to democratize finance—giving the rest of us access to the tools and techniques that rich folks have used for decades to raise capital and protect themselves from risk.
— Drew DeSilver

Seattle Times

[S]hiller comes across as pragmatic as well as visionary, explaining how much financial capitalism has done for society and how much more it could do if harnessed for the common good.
— James Pressley

Bloomberg News

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

[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

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

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

Robert Shiller makes a bold but convincing plea to reform the present financial system and use its power for the benefit of society as a whole.

Arab News

Some readers may suspect that Shiller…underestimates the materialism of Manhattan and Greenwich. Others may be frustrated by his meandering style. Reading his book is like wandering through an interesting garden…But the best passages in this book make a persuasive case for a fresh view of an industry that is too glibly demonized.
—Sebastian Mallaby

The New York Times Book Review

"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