One of my favorite economists; I have a quote of his on my home page. Most well known for his work on market bubbles and the Case-Shiller housing index. Here is a write up on his contribution via Marginal Revolution. BTW, he wrote a book in 2007 (edit 2003), that advocated that taxation be changed so that inequality in the US would be capped. Fama and Hansen share the award with Shiller. My second published paper uses GMM estimation, Hansen's chief contribution to economics. In contrast to Shiller, Fama pioneered work on efficient markets theory. The committee has a sense of humor awarding Shiller and Fama the same Nobel.
One of my professors in undergraduate once told me that "there are more positions than geniuses". I think the returns to mediocrity seem to be diminishing and this has some severe implications for the society. It seems more and more of our economic activity is organized around a tournament structure where a small minority receive enormous payoffs and the rest benefit very little.
Reality televison is the cultural canary in a coal mine that marks this broader employment trend with shows like 'The Apprentice', 'The Amazing Race', 'American Idol', 'Survivor', 'The Bachelor','The Bachelorette','The Biggest Loser' etc...
As recently reported by the NY Times,
"Now, many economists fear that the comfortable Plan B jobs are disappearing. Technology and cheaper goods from overseas have replaced many of the not-especially-creative professions. A tax accountant loses clients to TurboTax; many graphic designers have been replaced by Photoshop; and the small shopkeeper by Home Depot, Walmart or Duane Reade. Though a lottery economy is valuable to various industries, the thought of an entire lottery-based economy, in which a few people win big while the rest are forced to toil in an uncertain and not terribly remunerative dead-end labor pool, is unfair and politically scary. If large numbers of people believe they have no shot at a better life in the future, they will work less hard and generate fewer new ideas and businesses. The economy, as a whole, will be poorer."
This is not new, Frank and Cook identified this emerging trend 17 years ago. Robert Shiller advocates redistribution to prevent inequality from increasing.
As it turns out for my first post I am going to highlight the writings of Irving Fisher “The Purchasing Power of Money” published in 1911 - the year my father was born. This one is for you Reinhold.
Robert J Shiller recently published a short paper discussing Fisher’s work titled ‘Irving Fisher, Debt Deflation and Crises’ http://cowles.econ.yale.edu/P/cd/d18a/d1817.pdf (hat tip:Professor Serletis)
Shiller’s behavioural ideas about contracting in terms of baskets rather that individual currencies are interesting but I am struck by how much the Fisher quotes still ring true today. Consider them in the context of the credit binge, the popping of the housing bubble and where investor psychology is today.
“The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.”
Fisher also talks about the aftermath of a debt bubble and the problem a society has extracting itself from the consequences that follow.
“Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast, as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed.”