Economist Shiller: Let's Pay Wall Street to Teach Main Street How to Lose Money like Pros

In a reprise of that old Trojan Horse trick the Greeks played, Yale Economist Robert J. Shiller suggests we reduce this country's wealth imbalance by educating the man on the street to not get fooled by Wall Streeters by paying Wall Street to teach him. Say what?

Shiller writes that the United States needs to close the income distribution gap. The trick comes in 'how.'

According to Mr. Shiller:

"Financial theory is all about incentives for people to work effectively...Enhanced financial institutions could serve the real purpose that financial theory proposes: serving the people...It is only through [existing financial] institutions that inequality reduction can really work well in a capitalist economy."

Gee, that sounds nice. But wasn't the economic crisis largely their fault?

"The crisis we are in is largely due to investor ignorance."

So, let me get this straight. To reduce the wealth gap, we need to strengthen the financial institutions, whose goal it is to serve the people. To do that, we need to educate the ignorant common man. But isn't that expensive?

"We need to subsidize financial advice for the common man...we need permanent subsidies to get the full scope of financial advice out to the people."

Golly, Mr. Shiller, who would actually do the educating? Wait, don't tell me, I know this one... uh, lemme see... I'm gonna go with Goldman Stanley, Morgan Sachs and Yale. Yup, final answer.

For a Yale economist to play "blame the consumer" is incredible enough at this juncture. To use that argument ostensibly in support of "bridging the wealth gap" is disingenuous at the least. And to propose a self-serving solution like permanent federal funding for the education of the masses about a product set that has baffled PhDs and Wall Street is, well, you pick a word, I'm out of them.

Now, where have I heard this argument before?

Ah yes, I remember. Two years ago, the National Association of Mortgage Brokers used the same "it's-the-ignorant-customers'-fault" argument:

"Education is key...NAMB supports federal legislation that includes provisions to address financial literacy...NAMB urges increased enforcement of existing abusive lending prevention laws."

"MBA believes that borrower education to help consumers navigate the home buying and mortgage finance process is extremely important...MBA and its members have developed a number of strategies to educate consumers about their options in the mortgage marketplace."

Except even the mortgage brokers' industry never had the chutzpah to suggest a federally-funded permanent transfer of wealth to the foxes to teach the chickens how not to get caught by foxes.

Comments

[HelicopterDroppings]

With all due respect the author of the article and some commentators here I sense that people have not understood Shillers argument and where he is coming from. Far from being a Wall Street defender he has one of the most impressive track records in warning of the housing buble, the enrichment of Wall Street and the negative effects on Main Street. When Shiller makes an argument which involves a role of Wall St. one needs to take it seriously and look at the argument in detail

As far as I understand the NYT article Shiller main points are (each with a dedicated paragraph):
- we need to subsidize financial advice for the common man
- broaden financial markets to improve risk management
- change retail financial institutions, notably those that grant and service mortgages
- index the tax system to income inequality

The author of the Huffington article has taken the elaboration of the first point where there was some speculation by Shiller of the future role of the banking industry and twisted it around and painted Shiller as a different person than he is.

I highly recommend checking out the original NYT article and other work Shiller has done.

[funkalicious]

The Educational institutions that have turned out the morons running quant funds and Black Scholes models game theory nerds, don't want to be called out.

Simply put we have been graduating large numbers of losers taught by losers who's shoulders the current crop of derivative sub geniuses are standing on.

[iambusto]

what about the morons graduating from colleges/grad schools in debt studying all the liberal majors (women's studies, anthropology, history etc etc) when there is no way in hell they would make that kind of money to justify studying those majors.

[Hokhmah]

As Charles Green suggests, it's all about trust. Most Americans trusted FDR and the "New Deal" because they had nothing left to lose. But who would trust Professor Shiller and his Wall Street cronies who are the intellectual authors of the rolling thunder raining down on the global economy. Anyone seen former NYSE topper Richard "Mr Deferred Compensation" Grasso lately (yep $140 million golden parachute)? The irony here is that the middle class president-elect Obama wants to rescue aren't his supporters, rather the beneficiaries of "Reaganomics" who were cooled and schooled by the likes of free marketeers (some would call them mouseketeers) David Stockman, Arthur Laffer and Jude Wanniski. Trust in FDR's "New Deal" was the bedrock of a middle class that featured a single (usually male) breadwinner, a female homemaker and strong families and values that were galvanized by the Second World War. Those who started college during the "Reagan revolution" are now in the AARP "pre-retirement" demographic and theirs is the middle class Obama proposes to "save." It is a middle class organized around a two income family (husband and wife thanks to Reagan and Bush policies that cause declining real wages ), latchkey kids and weak family structures covered by a patina of Christian values. In trying to put the blame on consumers of financial services products, Professor Shiller seems to have forgotten why US currency features the slogan "In God We Trust."