Robert Shiller on Housing and Bubbles

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4.7 • 4.4K Ratings

🗓️ 15 September 2008

⏱️ 61 minutes

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Summary

Robert Shiller of Yale University talks with EconTalk host Russ Roberts about the current housing mess and related financial market problems. Shiller argues that the decade-long run up in housing prices was a bubble where speculative fervor outweighed any economic fundamentals. He also discusses the genesis of the Case-Shiller housing price index and his idea for how it might be used to reduce risk in the mortgage market. Note: This podcast was recorded on Sep. 5, 2008, days before Secretary of the Treasury Paulson put Fannie Mae and Freddie Mac into conservatorship.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	other information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. My guest today is Robert Schuller, the Arthur M. Oaken Professor of Economics
0:41.1	at Yale University. His latest book is the subprime solution. Robert, welcome to Econ Talk.
0:46.3	Glad to be here. Now you argue in the book that the current housing situation could lead to
0:54.5	catastrophic consequences for the economy as a whole. What's the source of the current crisis,
0:59.6	and why is it so dangerous? Why are you so pessimistic? Well, I don't know that I'm pessimistic, but I
1:05.4	think this country has in the past risen to the challenges of economic crises. So I give a
1:12.2	comparison with the Great Depression. Of course, economists love to talk about the Great Depression,
1:16.0	and I don't want to be alarmist, either, that alarmist. In that episode, that was our worst
1:24.8	economic crisis. We pulled together in many different ways, and I think the spirit that we
1:33.8	are going to solve this problem together helped make it from being worse. I think that's what we need
1:41.6	again. Capitalism is a wonderful invention, but it has to have a substrate, that popular
1:52.1	sense that we all support this, and it's all for us. What's been happening with the current,
1:59.2	what's most disturbing about the current crisis is the sense that some people have been ill-treated
2:05.6	and are not being helped. Who are those folks, and what is the nature of the crisis?
2:10.7	Well, if the history is always complicated, and it's difficult to point out who is needy or
2:18.4	who is guilty, that's the problem with human affairs. Another thing about most crises and
2:29.6	history is, at the foundation, they're absurd, and they don't make any sense. This one doesn't
2:35.6	make any sense. I think it was driven by a sequence of speculative bubbles, notably the stock market
	...

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