“To me…part of the process of pursuing the inexact aspects of economics is speaking honestly to the broader public, looking them in the eye…and then searching one’s soul to decide whether one’s favoured theory is really close to the truth.”
–Robert Shiller, Project Syndicate Op-ed January 20, 2011
The above words come from the same Professor Shiller who just a few months ago brazenly argued that our government, when engaging the broader voting public on the “complexities” of ‘necessary’ bailouts, should employ economic propaganda.
Shiller previously argued that terms like ‘bailout’ should be recast as ‘orderly resolutions’ so as to make sure the voting public ‘gets it’.
From Shiller’s November piece:
“When life is smooth, people tend to remain complacent, reflecting confidence in the economy. In times of crisis, such confidence is also vital, even if government can’t absolutely guarantee that it’s justified.
…well-thought-out framing packages can work. They can help sell crucial intervention packages to people who don’t fully understand the financial system’s complexities”
As I noted in my November response:
In other words, Shiller is making the argument that it’s not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public’s own good.
Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller’s recommendation even work?
To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was “contained“.
There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed’s actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.
Regardless of which of these two possibilities is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke’s comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence.
What made Shiller’s November words all the more disheartening is that they came from from one of America’s most respected and credible academic economists. Professor Shiller hails from Yale University and is a widely read author and creator of the influential Case-Shiller Home Price Index. While Shiller was not one of the academic economists skewered by Charles Ferguson in his excellent documentary film Inside Job, his November remarks certainly made him a deserving target of popular criticism.
Here’s to hoping Shiller’s comments in his recent Project Syndicate op-ed reflect an about face and commitment to speaking clearly and truthfully with the public on economic matters such as bailouts.