Ever wondered why government officials use fancy sounding terms like 'quantitative easing' instead of the much easier to understand 'printing money' when they both effectively mean the same thing?
Yale Professor Rober Shiller, who correctly predicted the housing market crash, weighs in on this topic with a piece in this weekend's NY Times. In the article he describes how to handle the inevitable next financial crisis.
His rather surprising answer? By using the right vocab.
In what so far as I can tell is a first by an esteemed member of the academic community, Schiller goes on public record rationalizing the use of propaganda by government officials.
Shiller states:
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 possibilites 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.
Are 'bailouts' and 'printing money' hopelessly beyond the general public's understanding, as Shiller believes? And instead of coming up with the proper vocab, shouldn't officials and financial experts be working on how to prevent the next financial crisis?
Yale Professor Rober Shiller, who correctly predicted the housing market crash, weighs in on this topic with a piece in this weekend's NY Times. In the article he describes how to handle the inevitable next financial crisis.
His rather surprising answer? By using the right vocab.
In what so far as I can tell is a first by an esteemed member of the academic community, Schiller goes on public record rationalizing the use of propaganda by government officials.
Shiller states:
"in times of crisis...confidence (expressed by the government) is also vital, even if government can’t absolutely guarantee that it’s justified...for people who don’t fully understand the financial system’s complexities "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 possibilites 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.
Are 'bailouts' and 'printing money' hopelessly beyond the general public's understanding, as Shiller believes? And instead of coming up with the proper vocab, shouldn't officials and financial experts be working on how to prevent the next financial crisis?
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