Bob Shiller’s Nobel:  Finance IS a Force for Good!

By Shlomo Maital      


   Together with Eugeme Fama (U. of Chicago)  and Lars Hansen,   67-year-old Yale U. Prof. Robert Shiller won this year’s Nobel Prize in economics for  ‘contributions to our understanding of asset pricing’. 

     Those laconic words don’t begin to do justice to Bob’s contributions.  He was among the few lone voices who warned that America was in a housing bubble, that would soon burst.  He knew this, because he had developed a reliable, accurate measure of housing prices, the Case Shiller Index,  that is widely used.   Earlier he warned that the stock market was in a buble, in his 2000 best-seller Irrational Exuberance (the dot com bubble burst in March 2000). 

    I encounter many MBA students (some here at EDHEC) who are fascinated by the world of finance, but who are pondering whether to remain in the field, because of the downsizing and layoffs in finance, and because finance was given a bad name after the 2008-12 financial crisis, owing to a handful of scoundrels.  I urge them to remain in finance, and to innovate and reform the industry, and reinvent it.  And I always recommend that they read Shiller’s new book, Finance and the Good Society (Princeton U. Press, 2012).   Here is how Shiller frames his pitch:

“… finance should not be viewed as inherently or exclusively elitist–separating people into different income groups, or as an engine of economic injustice. Finance, despite its flaws and excesses, is a force that can help us create a better, more prosperous, and yes more equal society.    In fact, finance has been central to the rise of prosperous market democracies and is unimaginable without them.  Beyond headlines incriminating bankers and financiers as self-aggrandizing perpetrators of economic dislocation and suffering, finance remains an essential social institution, necessary for managing the risks that enable society to transform creative impulses into vital products and services, from improved surgical protocols to advanced manufacturing technologies to sophisticated scientific research enterprises to entire public welfare systems.  The connection between Wall Street and Main Street is as fundamental for society as is the connection between the brain and the nervous system in the human body.” 

    Finance specialists:  Stay the course!  Innovate, create, seek blue oceans.  Finance needs you,  Nobel Laureate Shiller says,  and I strongly agree.