manuscript edition. something about that transition that is very important for today. special collections are important because they highlight the value of oxen the history of hooks have played in our culture but also because they help us think about the transition we are going through now in art digital age and i find it very valuable to bring authors and talk to students about thinking about the books in understanding how we went from manuscript to print and in the 19th century the mass publication of books, what kind of changes that impacted on our culture and think about how it's relevant today in our digital world and thinking about how we write and how we talk to each other and how it influences the way we think. i think special collections are important in that way. in the beginning of printing, this is it low, the earliest

book from 1483 and it does also resemble text. is actually like many printed looks in the 1400's and 1500. that is from the 12th century and look on kenyan law. the last book is an important book in the history of printing by a well-known publisher, company berger. it is biblical in world history. the history of the world as seen through the scripture depicted but also a history of the city in the history of the culture. this book published in 1493 is also quite significant because of the degree to which demonstrations are incorporated into the text. in fact very much printed books of this time, sometimes the illustrations are repeated. this is in nuremberg and this is the city where the book was

published. this is a really fine example of the vote, again from 1493, that can be used for a number of areas like many aspects of our collection from religion, politics, history and that is the mission of this particular collection, to be able to promote and research teaching at all levels, for smaller, graduate students and undergraduates. we would like to see that continue. >> you rubber shell or argues for a wall street financial firms should be criticized for their role in the 2008 collapse, isn't necessary to figure out what to harness the power of the financial sector to advance the public good. the booktv event is just over one hour.

>> good evening and welcome to tonight's meeting of the commonwealth club of california, the place where you are in the know. the commonwealth club.org. i am editor-at-large and moderator for today's program and it's my pleasure to introduce robert shiller. robert shogan is a yellow con a mess come one of the a slew of economist awards, one of bloomberg's 50 most important people in finance. but there is an important reason we listen to robert shiller. he has an amazing ability to see problems coming down the road and if you listen to robert shiller you could have avoided a lot of those problems and maybe could have made a little money in the process. what kind of problems? how about the problematic belief that everything bad is priced in the market or at at the price of any given stock --

what warren buffett could do to squeeze by the sufficient markers. in the late 80s he proved chair bayboro finance at the market was likely to be much more volatile and emotional than any rational calculation might suggest insomuch producing the crash of 1987. not done in the late '90s explained why the dotcom bubble had to pop predicting the march 2000 market crash in his best-selling book irrational exuberance. for all that he is best known for calling the overinflated housing market are going to thousand three you wrote a birthing paper title is there above all in the housing market? he was widely mocked for the prediction that housing prices could fall by maybe 50% but within five years they fell 40%. a germanic, dramatic fall. so what happened in the housing market, what happened in the stock market, the idea of the kind of risks that are out there and can be seen with a careful eye robert shiller has proven

that. his new book is a really interesting take on the potential for finance and the potential for what our society can look like at a time when there is so much fight about who should be taxed, about what the 1% is, about who deserves what they have and how capitalism eisen works. robert shiller we are glad to have you join us at the commonwealth club of california. [applause] >> cori, you gave a number of examples of me predicting disasters of one sort or another. i would like you to get out of that mode. it is not time to predict any disaster tonight. i think what i want to do is talk in and a longer timeframe about how we got here and where we are going. i tell my students, we have a 100 year horizon because young

people are going to live 100 years maybe or their children will. a lot of changes are coming and it's hard to write about them and think about them. the title of my book, "finance and the good society," i don't know how you hear that but it was meant to have a little tension in it because it seems like an oxymoron. finance seems to be this evil business that makes the rich richer and it seems to be opposed to the good society. i have been teaching finance at yale university for 25 years now, and i also teach to the whole world because my yale courses on open yale and you can take my course by the way. it is on line and it is free. i have exams and problems if you really want to go the whole way

but i won't grade you. i have been concerned over the years that it almost seems like i am doing a bad thing. people are so angry about finance today and it seems evil. i feel a little bit like an rotc instructor during the vietnam war. [laughter] catherine wrote an article in "the new york times" a couple of months ago based on her asking top universities what fraction of your students went into financial services, and the general answer she got was, just before this crisis was something like 25%. she was questioning whether that was too high. the record was princeton which had 46% going into finance in 2006. you are frowning.

[laughter] i am touching a nerve here i guess. people think, whatever happened to science or engineering or education or the helping profession? is something wrong? i'm not going to say with the consent should the but i want to think about that and i think c., part of the reason -- i hope i don't anger some of you. i have given talks like this in the past and it sounds like i'm apologizing. let me say right up front that there are some really awful people in finance, okay? [laughter] but there are also -- the differences, there are some really awful people in education too. but you don't read about them in newspapers because they don't get rich doing it. they get lazy for example and that is not a good newspaper

story. but the thing is, there's there is a fundamental problem with being so angry at finance and that is that we are going through a worldwide miracle of economic growth in all of the emerging areas of the world, in asia, in the middle east, and latin america, and the former soviet countries, even in sub-saharan africa. i believe this is because of financial capital. we are emerging into an era of financial capitalism. financial capitalism, what is it? it is really about new methods of allocating resources, incentivizing people and managing risk. and it makes business work. i am finding a pro-market but i'm going to come back and say

only what works when you have proper regulation. the system we have is an invention that was developed through experience over hundreds of years and the countries that have adopted it have done really well. now it is kind of open season that this works. so when lula became president of brazil, people thought he was not going to be friendly to business but he was friendly to business and now a miracle exists but it is not just brazil. it is all over. the financial crisis has created a sense of serious problems with this. i don't think that it is tipping the balance so that we would actually stop this progress, not at the current.. but there is the sense you will get in some discussions of their

recent crisis that it is the malefactors that have caused the crisis. there are malefactors but it seems to me the question should be what kind of economic system do we want? we? we live in a world where there are all kinds of people and there are some people that scare others. they haven't committed any crimes yet, right? we kind of want to stay away from them and unless they commit a crime they are going to be out there. we have to design a system that is as nice, that makes it and encourages them to be constructive. there are aggressive, selfish, greedy people. they tend sometimes to go into finance. [laughter] it is a good place if that is your personality although i tell my students, you might know it but if you are sociopathic, don't go into finance. [laughter] because there are rules and

regulations and you will be discovered. tried to go and do something that is more benign. my advice. the problem that created this crisis was a couple of things that we didn't understand then i think we understand better now. one of them was a the systemic vulnerability of the whole system. we didn't have data, the interconnectedness of financial institutions so the dodd-frank act a.c.t. is going to derive or data. but we didn't have it so we didn't understand how vulnerable the system was. we bought -- we got very leveraged. there was a lot of inflating asset prices and not well enough understood. the other thing is we had our chairman's bubble in the real estate market and that oval was not a tree shaded. one thing about people, and i

talk about human psychology. one of the most striking thing about people is they can be brilliant in some dimensions and really ignorant and others. if you think about history, you realize that somehow it became conventional wisdom that home prices never fall, and i just find that amazing. i actually talk to people before this and try to understand their thinking. they are very smart people and you know, they would be kind of dismissive of my asking. if i pressured them they would say, home prices have never fallen. i would say wait a minute, what about japan right now, or what about the great depression? and they would say well, that is japan and the great depression was a long time ago. that is all i have to say. we got into this crisis because of those mistakes that we have to fix them. what do we do to fix them?

that is the question and that is what i think is the challenge for young people today. the question is what should a young person who is idealistic to? should he or she avoid finance? i don't think so because i think that is so much the hope of our future and it involves so much transformation. you don't want to leave it to the sociopaths. you don't want to -- there is a moral responsibility to get involved with things that matter. we understand a lot more fundamental about finance through our development of behavioral finance. that is the science of finance, a study of psychology and sociology and other social sciences and that it. also we have something called narrow economics that is just developing. so many different intellectual traditions are getting involved.

the medical school is getting involved in economics now because they are learning so much about the brain. one thing we have learned is that people have a lot of circuits in their brain that ring out certain behaviors under certain circumstances, so you know, you have an impulse to be selfish and if there is a sale and items are being grabbed up quickly you have an impulse to run in there and grab before the next guy but at the same time you have an alternate experience. that is well is well-established that aren't part of your repertory. the thing that is nice about modern society is that we have found ways to mitigate the bad tendencies and put them in good stead. ..

>> they created limit liability for investors, and if you invest in a company, and the company was later accused of wrong-doing, the complaint -- the lawsuits never go after your assets because you invested in the company before that people were afraid to invest in companies they didn't know. so made everything like a family business. you had to have people you trust. the law changed everything and it was copied over all the

world. now, a friend, david roth, studied these carefully, and it created a sense of pleasure in investing. it made people -- people used to invest in lotteries. love to gamble. another human trait. love the excitement of finding out if your number comes up. by creating limited liability, became fun. like a lottery is fun. people to have tone joy life. something that makes you get out of thed in in the morning and gives you some excitement. we design things that give you that feeling. that securities law has been the source of a lot of our innovations, because now investors -- looks like they're playing a game. looks selfish, but it drives our economy. other people before -- karl marx thought it was gambling and throughout we should shut it down. but people think, well, maybe we

have to let people indull knowledge in these feelings. so, i want to talk about the future and the ideas i talk about. i'm going to start from tomorrow, and then move a little bit more and more into the wild future. what happens tomorrow is president obama has said that he will sign the jobs act. that name for the act was a little bit misleading. maybe for in political reasons. it's not about jobs. it's called jump start business startups. that spells jobs, and it's controversial. i like it, though. notably, it may or may not work well, but let me tell you is the

most interesting part of the act. the jobs act was created in response to requests from internet web site providers who wanted to create a crowd funding web site for entrepreneurs. so if you're trying to start business, you can put it up on their web site and say, i'm looking for money, and then thousands of investors, or millions all of the world, can send money and you can start a business. this is a wild-sounding idea, isn't it? but it's endorsed by a lot of internet people. i think it's just about as wild as wikipedia sounded. if i came to you -- before wikipedia started and said, i'm going to open an online encyclopedia and led anybody in the world add it to. my first reaction would have been, that's a dumb idea. right? it's not going to be a good

enpsych low speeda. but we learned something about how people can work together through wikipedia. so i think is it a good experiment. what congress has done is they're worried that it's going to be -- there's a lot of cheats out there unfortunately, and someone is going to steal money from someone else. so one thing they have done in the legislation is that for -- you have to document your income to the web site, and for people with incomes up to $40,000, you can't invest more than 2% of your income. which is, what, $800. so it's small. for each individual. and that protects people. right? can't go that bad. i think the maximum is $10,000 that you can put in if you have a higher income. so, it's designed to protect people. but you know, even if people can only invest $800, if you get enough of them, you have real capital. and the thing that is exciting to me about it, it reminds me of

an insight from the 1940s in the book, the road to cerfdom, and that is when you think about it. information about the economy is wide by disbursed. he said there's a lamental fact now -- in 1944 -- that people think that scientists know everything. or scholars know everything. in fact, so many of the important things you need to know about business are disburied. they're local things, like where would be a good place to open another coffee house. what kind of coffee house would sell in our district? and that kind of disbursing could benefit from crowd funding the way wikipedia did. i'll move on because i have so many ideas. that's tomorrow. obama said he'll sign it tomorrow. but you won't see -- by the way -- these web sites for a while because they have to go through regulatory hoops.

but maybe in a year you'll be starting a business, in crowd funding. next thing, the benefit corp. this is actually two years old. the first benefit corporation was created in maryland in 2010. what it is -- now, eight states have them but it's spreading, and i assume most states will have them eventually. what is a benefit corporation? it's a corporation which, in its original charter, defines some public benefit. it's a for-profit corporation, but it has a dual mandate, make profit and do something for society or for the environment, some cause, good cause, and the company can write into its charter its own definition of what social benefit it wants to pursue. so, if that means it can attract investors who focus on that particular thing.

i notice there's a fertilizer company. makes fertilizer. and its charter says that it wants to restore a healthy nitrogen potassium sodium balance in the earth's soil. now, that's not a cause that most of you here are sympathetic to. but i think that's the kind of -- that's where you have a democracyized funding. we have a lot of diversity in benefit corporations and they'll appeal to people. the question is, will it succeed as a for-profit? the american idea has been, companies have to be exclusively for-profit. if you blur that, they're going to play tricks. all kinds of bad things will happen. well, the benefits corporation is another experiment. maybe it won't work. maybe we have to tinker with it. my guess is it will turn out to

be more profitable than a strictly for-profit corporation. they may sound paradoxical. if you tell the board of directors, don't make profits, or tell the board, want you to make profits but contribute the community as snell i think the latter will make more profit in the long run because it has the loyalty of the community, the support of the community, they will have the workers who feel better about the company because they feel that this isn't just about making money. so, that's my prediction. this will be another success. there hasn't been a benefits corporation in any country yet. this is -- i'm giving you two examples of american innovation that is just happening. now i want to move more into the future. i'm thinking about making philanthropy a more rewarding experience. my students think they will be billionaires, and they -- never know in the next 50 years,

right? we're going so fast. i think that they should give it away. it doesn't make any sense to accumulate money. andrew carnegie said that in his gospel of wealth in 1879. i think it's still true. there's a moral imperative to give it away. so it's a game. life is a game -- i don't need to make a cynical statement. you're trying to do something that stimulates you and wakes you up, and making a lot of money is five inyou're going to give most of it away. and so -- but the problem is that it doesn't seem very satisfying or enjoyable. there's something missing about philanthropy. when someone calls you up at dinnertime and try to get you to give money? you wouldn't want to give away your life's work just like that, it's gone. it doesn't seem exciting.

so, incidentally, i think probably all of you here have logged on to wikipedia, and have you soon the banners asking people to donate. i won't ask for a show of hand but i asked in other audiences and 10% have done it. why not? why didn't you give $100? i think that there's something that you -- maybe you thought you would do it eventually but not yet. it's not something you return out -- rush out and do. so we have to think of new institutions that have more fun and are more rewarding. if you make a billion dollars and give it away, seems seems to anticlimatic, maybe. it's just an idea and may not be exactly right. i want to define a new kind of nonprofit. this is not a benefits

corporation. this is aen in profit, which i call a for tis pacing -- call it a participation nonprofit. the institution has too -- the structure has to be created by the government. you can make a -- i envision this as something like a hospital, nonprofit hospital, or a school, or college. you can make a donation to these -- and it's tax deductible, just like a charity -- well, it is a charity. but your donation takes the form of your buying shares in the nonprofit. and then the company -- the nonprofit pays dividends from its income to your account. and it al low cakes with the one proviso, only to charity. you can't spend it on yourself. now, i don't know if this -- this is, again dish don't -- i don't know if i'm connecting

with you on this. but it seems more fun because we have a natural desire to accumulate. and we're ego tis -- egotistical. and everybody loves to accumulate and be praised. so why not let you accumulate money in a special account as a result of having given a gift? wouldn't that be more interesting? and also want to put the money into some enterprise that's big and important. like wiki speed a, something like that. i think they could get a lot more money with a framework like that. and then you can pull it out. what happens to nonprofits today? they set them up 100 years ago, like a hospital. not a great hospital, maybe. but it does make a profit and keeps plowing it back into the hospital, and smart people know it should go elsewhere. this would give you some kind of oversight.

i'm thinking. let me november on to other ideas. continuous workout mortgage. i think we should have mortgages that designed with a preplanned workout. if the economy turns sour and home prices fall or unemployment rise. what is a work out? today if you can't pay your mortgage, you go back to the mortgage servicer and say, give me a workout, and then they will say, no, and that's the end of it. they may keep you in doubt for a long time. i want this to be preplanned. an automatic and continuous, and that means as home prices fall, your payments keep going down, as long as they keep falling, they keep going down, and you don't have to ask anything. they just do it -- all be computerized. that sounds a little strange. never been done. but why not? we could do that. i think they'd have to charge a higher rate. this is a free market institution. we need the government only to regulate things and make sure they're clean, and clarify the

legitimate si -- legitimacy of them. if we had workout mortgages we wouldn't have more than 10 million households under water. we wouldn't have complaints you bailed out the corporations and now you're not bailing out me, the home owner, because we haven't -- you would have been automatically build out. not by be government but by a private institution and wouldn't have had to maybe bail out the institutions, either. now, you might be asking, how is this going to work? how can our mortgage originator have a big reduction in payments in bad times? there's where we need more financial sophistication to make that happens. finances tell you about howlets of things can happen. they could securitize the mortgages. sounds like a bad word. people hate securitized mortgages but it's spread risk.

that's always right and if it's done honestly and well, it will do that, and the mortgage originator puts them in portfolios all over the world. and we could develop future-unders markets on real estate prices. i have been involved in doing just that. i have the s&p case sheller home price indexes that my colleague and i developed. started off in future markets in ten u.s. cities for home prices, including san francisco, and they have been going for five years now. so you can hedge -- instead of retailers -- hedge the risk. the cme opened a few days ago, a new options marketed based on our indies sees. the problem is they're not working well yes.

but in the future this is the opposite of what warren buffett said. i respect the man a lot but he is not always right. he said derivatives are weapons of mass destructions. i think they're dangerous just like anything that is powerful is dangerous but we can regulate them and make for a better world. maybe that's all he meant. that's like nuclear power but i won't get into this. i have a couple mother minutes? another idea is the government should issue index -- they issue debt. we have a huge national debt. the u.s. government has never, in its history, issued equity, which means shares. why not? companies do it. they issue both debt and equity, and options and warrants and all kinds of things. let's at least move a little bit beyond most conservative form of obligation from the government. so supposedly mark kempster and

i -- university in toronto, we propose the government issue what we call trirr. a trill is a one trillioneth share of the gdp. the advantage is if we have a recession, the obligation of the government goes down automatically with the gdp. i have also said we should leverage them up but i won't try them here. if greece issued trills. there wouldn't be a greek crisis because the declining gdp in greece would have bailed them out automatically. why are we doing these after-the-fact bailouts. have to deal with the german conservism. i know why you are conserve.

you go in after the fact and have to give them money. bailing out companies. doesn't feel right. it should be preplanned according to rules. so i have one more idea and then i'll stop for a question. this has to do with the "occupy wall street" complaint. the 99 -- well, they say, we are the 99%. this refers to the fact that the top 1% of away easterners in the united states saw an increase since 1990 of their real after-tax earnings of almost 66% and the bottom 99% has seen a decline. so something is going wrong with our income distribution. and i don't see plans to deal with it. so i have a plan. which is very simple. i think that -- i call it inequality indexation of the tax

system. or sometimes i all it inequality insurance. we have a progressive tax system. we should agree that if some threshold of inequality is reached we will automatically raise tax. congress decides when the 99% is sufficiently disadvantaged relative to the 1%, we stop it because we put increase taxes on the top 1%. and it's automatic. we decide now, whenever that happens, it goes on automatically. the instructions instructions i, change the rates to make it happen. there's an article be ian ayers in "the new york times" but the idea is, how much work should we let inequality get worth? 50% or 70% in isn't there some limit to where we let got, and

if there is, why can't we agree now to have a contingency plan that will automatically stop it? i think we're much more likely to succeed in dealing with inequality if we plan for it in advance. that's what finance is all about. it's like insurance. if you are worried about your house burning down you have to buy insurance on it before it burns down. if after it's ashes you go to the insurance agent and say i'd like insurance, they won't govern it to you anymore. it's the same thing. if we let inequality get really beside -- i'm not saying it will. we don't know. but it's trending worse and no -- if we just let that happen and it does happen, when that day comes it's going to be hard to raise taxes on the rich. it's easier to do it now, and that's finance, and that's the democracyizing finances. so i'll stop there. >> we have a ton out great

questions from the audience so please feel free to submit more questions. you're listening to the commonwealth club of san francisco, and it's a thought-provoking read. i want to ask a couple questions and take questions on cards here. i couldn't tell in your book whether "occupy wall street" inspires you or scares you? >> actually i think "occupy wall street" is part of a bigger movement. it's really a continuation of arab spring, and it was found in madrid before "occupy wall street." it was after that, found in warsaw. a democratic movement and a discovery that people are rediscovering that protests can bring down governments and can make big changes. so, i'm inspired by that part of it.

i think that they're bringing up the dissatisfaction with the inequality that is developing in our society. people have been saying, people don't really care. well, now we know they do care. and that they're wanting to make a change. but i guess my disquiet with 99% is that there's a ton of them, seem to be saying that my students are doing the wrong thing. i think that my students -- i don't speak for all of them. all over the world, but i think that there's a -- they are doing something just as important. if they go into finance and fix it from the inside, and so that's where i differ from the general "occupy wall street" and protested as if they were nazis or something, and that's where it's wrong.

>> there's an old saying that the problem with socialism is socialists and the problem with cap capitalisms is capitalists. so you have idealistic roles from everybody in finance, from board members to ceos and bankers, but you mention it, but it seems that the marketplace is a great place where more base virtues, like greed and competition, create a better outcome. >> this is the thing. this is why we need behavioral finance. people say, why are ceos compensated so much? because in the past they would do these things out of their goodness of their heart. somebody said that's true. you feel a responsibility for the employees. there was a book about executives over the last 50 years, and argues they used to feel more heartfelt for their

employees and there's been some decline in that. so, i think that our culture maybe could emphasize caring more? i think maybe we're heading that way. the other side, does that mean we don't compensate -- should we make law against paying $50 million to a ceo? and i'm thinking, well, 50 million is pretty high. >> it's been done. >> depends on your perspective. that's the point. i think that maybe we shouldn't outlaw that. because you see, the thing is, because people are complicated. so, lee iacocca agreed to work for one dollar when he was taking over at chrysler when it was failing. so, he offered to do that. that's great. but can we just count on that? i don't think so. there's a mixture of people

have -- >> heart of a deal, whether it's on wall street or buying a car, the buyer hopes the seller is going to overpay, right? the seller wants just the opposite outcome. the two forces that want to take advantage of each other will, in the aggregate, arrive at better pricing. those aren't virtuistic goals in a traps satisfaction -- transaction. >> i like my career as a college professor. i don't get into moral dilemmas like that. a used car salesman would be a difficult career for me. >> you'd do fine. >> so, that's life. different careers push you in different directions. so i think that the career of a ceo is fundamentally important because they guide an organization, and the reason

that -- well, two reasons. a good reason and a bad reason. the good reason is, take some guy who has been running companies -- 60 years old, has been great. great people skills, and he knows how to turn a company around, supposedly. maybe. maybe he does. now another company is failing. they have 10,000 employees. they were a great company and they're failing, and someone says, bring him in maybe he can fix it. he has done it. they want it. then he says, look, i'm tired. my wife wants me to retire. $10 million just doesn't interest me. so, they bid him up and say, we'll give you $50 million. and he goes back to his wife, and she says, i can get $50 million, and then they start a family foundation maybe and we can be pillars of the community.

>> 10 million -- >> only buy you one house in san francisco. so -- let me get the bad reason. the bad reason is he has a board and they say we'll fool the shareholders and say you're a great executive, and remember me sometime, i gave you a favor. can't be explicit but some day you'll pay me back. that happens, too. that's crony capitalism. so it's not perfect. sarbanes-oxley tried to regulate that by requiring that outside members -- there are issues about executive compensation, and that's what comes to my mind. >> you talk in your book -- gets to a question about you in the book talk about preferring stock

options, not bonuses as a method to make ceos better motivated with the company. but stock options have been part of the scandals, quest, home store.com, you name it. and yet you think stock options is better than bonuses. >> well, there's an argument. everything is complicated. there's an argument for stock options because if you give it a ceo a bonus for making a lot of profit this year, the ceo has an incentive to just milk the company for profits. the tip cocoa -- ceo is only going to be there for a few years. so you don't do any long-term planning, you sell things off and play tricks to make profits. that doesn't work as well if your compensation is based on the stock price, because then

the investors see that and see through it. and the price falls. that's the idea. there again, it's still imperfect because the ceo can still play tricks by concealing bad news and creating false impression of good news. so i don't know the perfect system. ...

and finance and in picking portfolios? >> corporate governance analysis means studying how it works. >> and this whole notion of social investment. >> yes, it's an old notion so i think that we haven't focused on that enough. i think maybe this is a term that will come back. we were going -- though we went through period in our history particularly in the united states where the read is good mentality predominated, and it was associated with the efficient markets hypothesis. it was in reaction to abuses that people who serve the public good actually filtered money to themselves. there's a famous quote from adam

smith's wealth of nations written in 1776. i cannot "it back it memory but something to the effect that the baker, the butcher, the people that serve our lives are not doing it out of the kindness of their hearts. they were doing it for a profit motive and i'm trying to quote approximately. he said i think it's those people who serve us better than the self-described philanthropist and sometimes it is true. because there isn't that much philanthropy. most of what we get is involved with other people, and so i think we overemphasize the atom smith view or that view of adam smith. he wasn't so simple. he was complicated too. we have lived in it period where we thought that we were evangelizing to the world the virtues of self-interested profit making. i know that was the mood on our campuses and in our business

offices, that we tightened up. and i mentioned luetscher tell's book. he interviewed executives and he could see the change that executives 20 or 30 years ago felt more of a mission where their employees than they do now. so it is a change in our thinking and the pendulum is swinging back. we were in an extreme period of selfish capitalism and we are moving out of it. >> the question on everyone's favorite way to get back to the community, taxes. at what level would would wouldu advocate a corporate tax rate and why? >> okay. >> this is somebody else saying it. >> corporate tax rate, okay. there are lots of economists who say it should be zero because it was double taxation. corporations are owned by people. some of them in low tax brackets

and some of them in high tax brackets. for example the fireman's pension fund will have money in the stock markets, so what do we want to do about corporate taxation? i think that there is a plausible argument for setting it to oh, but there are other arguments as well that suggest that maybe it shouldn't be zero. you understand any organization can get out of the corporate tax by redefining itself as a partnership rather than a corporation. and, a lot of groups do that. they tend to be small groups, groups of lawyers or accountants or typically partnerships rather than corporations. you can do that but they suffer liabilities. they can be sued and they can take your home or your car. some other organizations tend to

encourage big organizations but they also impose costs on society because if they do something wrong, they can't be sued for it. so for example, tepco in japan ran the fukushima nuclear power plant. it caused a huge disaster and now you can't go after the shareholders. the shareholders were profiting from a nuclear power plant that wasn't done right and then after it's over, they say sorry, you know, you can't take it from us of the japanese taxpayer has to pay for it. that is why there is an argument for having a tax on corporate profits. >> but should the tax be set on theoretical liability of the cost of having a corporation or having all corporations or should it be some level of need in the community? >> i thought you were asking a very technical question and so -- until you said need in the

community. [laughter] i have her discussions in public finance about optimal corporate taxation. i don't remember this need in the community. >> that is what the discussion is about. anger about corporate taxation, why is we as individuals be tax so high when individual corporations are taxed so low? >> well, i'm going to be an academic and say that is a very complicated question. >> there are a lot more questions from the audience. the job legislation which you mention in its current form, do you think it would be beneficial and reference a great column and the -- were bring to it as the bucket shop employment act of 2012 come that taking away regulations protecting investors may be so soon after might not be the best thing.

>> bucket shop is the name for an institution that was common in the late 19th century and then faded, disappeared. it became outlawed. a bucket shop is a place where you would go and have a glass of whiskey in and there would be a painting of a girl up there and you would bet on stock rises. they got man and you would smoke a big sigar and you would go in there and at the end of the day you lost everything. so we don't want that. >> you might refer to it as the boiler room employment act. >> the boiler room, the boiler room came in when they invented telephones and they became common. people -- when they got long distance phone calling in the 1920s, so a boiler room, the cheapest real estate you can. that would be the basement of some building and you would hire

people to make phonecalls to investors. they would pretend they were calling from some glamorous wall street office. they would call from all around the country and they would say i have this hot new stock free that is going to take off and i'm going to let you off -- let you in on a secret. yes, those were abuses. most of the bucket shops in the boiler rooms were abusing less informed people who didn't understand so they were both regulated out. we have to be aware of that. that is why it is a controversial idea. crowd funding is a controversial idea because it could bring up that. the act has restrictions on it. it can be like i mentioned. a man would go in with the family fortune to the bucket shop and at the end of the day he had lost the whole thing. it can't happen because it's no more than 2% of your income, so

that is a fundamental protection that is not thinking an oversimplified terms. bucket shops and boiler rooms were a serious problem in an earlier day but let's not be too afraid of american free enterprise involving the people. i think this experiment might really work and it might be an inspiration. let's just see how it goes than we can change it if it doesn't work for chris fee i guess the notion of some fraud. in my prior life prior to hosting bloomberg west it was fining fakes and frauds in those companies and there are characters out there who always use these to create phony stock promotions and run these things up without any results. >> let me tell you something about self-regulation. we have this organization called finra which is a trade organization of stock rockers and the like which imposes ethical standards from within the industry. they will do continuing

education that reaffirms the ethical standard. what they actually do for stockbrokers in this country, they have them watch little movie clips and the movie clip will show the stock roker worker sitting in his office and a client comes in and says, let's do something a little shady. i am going to assign us. it is supposed to be my husband's signature but i will sign it and we will does not tell anybody and in the movie he acquiesces. then he is ruined. they show what happens in and all of the consequences. so they are trying to remind people that it is a slippery slope. [inaudible] >> they do show in the movie other people. the safest route to avoiding getting out on the slippery slope where you have done something wrong and now you have to cover it up and it gets worse and worse, is to be squeaky clean all the time. that is the inspiration and you do it out of moral conviction.

so you tell her, i would not accept your fake signature because i can imagine myself ever doing such a thing. >> i am inspired already. [laughter] a question here about glass-steagall and do you think less deal should be reinstated and is that a big issue that needs to be dealt with? >> the glass-steagall act and 34 i think it was, was an act that created federal deposit insurance corporation and it also told banks that they couldn't get involved in what is called investment banking which is the more risky side of banking. the reason they put the two together in the same bill is that they thought well of the government is going to ensure banks, we have to make sure they don't do risky things. and that was the idea of glass-steagall. it went on until the late 20th century and then it was

repealed. then more recently paul volcker got another version called the volcker rule which was brought into the dodd-frank adds for much the same reason. it was a little different. these banks were bailed out by the government and it cost the taxpayers money. basically the same reason, but he wanted to define the ruler little differently than glass-steagall. but it's the same idea that tanks can-do proprietary eating -- proprietary trading. then you get logged down in the details though and this is where the lobby is common. i don't think there uniformly evil. maybe some of them are evil. i have a chapter in my book on lobbyist and i think most people are a mixture of good and evil. the lobbyist i think are skilled in finance and they point out, you are going to shut down all

these activities in our bank that they are integral to what we do when we provide services to the customers. you can't just shut this down. you can but you will destroy your banking system and we won't be competitive with the international situation. can you just tinker with this rule of little bit so we can do this that we have always been doing? so it gets more and more confiscated. now, is that evil? is the volcker rule still functioning? that is a big and deep question. my thought is -- i'm not a good debater because i think usually in life it is somewhere in the middle, right? i can debate either side of some important point but then i would be feeling dishonest. the same thing with efficient markets. at the half-truth. it's not completely wrong and not completely right either. i think the volcker rule is an extraordinarily difficult thing to discuss in a venue like this. but i think it's not wrong for

the government to get involved with that kind of rulemaking. the details are monstrous. >> a lot of questions about investing and where your investments are and so on. [laughter] an intriguing one here, how does investing in the stock market contribute to the real economy outside of the obvious investing in ipos in the secondary market and creating a market for a new company? >> okay, so this gets back to karl marx who said it was gambling. more recently a lot of people said that the stock market doesn't fulfill any social function because companies don't raise that much capital by issuing stock anyway and so what is all this activity for? there has been debate about this in the finance literature. turns out companies to issue stock to finance their business, but it's often in the form of options to employees or executives.

still it is issuing stock. so i don't think that it's a bad thing. >> the notion that it contributes to employment. does exist and that the market, when you're talking about futures trading in an index creating the opportunity to leverage risk? >> there's their systems with all this trading back-and-forth has wasted activity. well, the question is what do we do about it? it looks wasteful. i will give you an interesting point in my book. look at all the cashiers at stores. if everyone were completely honest we could say put your money in and we don't need anyone watching you. it seems like there is a tremendous waste. sam bowles who is a left-wing

economist commented an, did an estimate of the amount of -- it was a huge percent. lots of things happened that seem wasteful. >> 14% of the economy is people guarding something. >> right in that seems wasteful but the question is everything is imperfect in the system that we have, we don't really understand why it works as well as it does, given the imperfections of people. and so you look at certain things that seem wrong, that seem wasteful but they are consequences of a system that has other purposes. so there is this thing about the tax. my colleague at yale propose we put attacks to discourage all this trading back-and-forth. >> the big push about high

frequency trading. >> high-frequency or millisecond trading. now you have traders who will program a computer to trade within 1000 so the second. they can respond faster than anybody else to the market situation what they sometimes do as they will place a value order for one millisecond. they have these electronics now. one millisecond. another question, is that bad? i don't necessarily know the question to everything you are asking me so i'll try to give my answer. [laughter] i think it's relatively harmless and i have talked to people who do millisecond trading and they say, i don't see with a big issue is. i'm doing the same basic business that i used to do. it's just like an engineer who used to have calculations with a slide rule and in elias computer and he has a microsecond

calculation. everything is sped up in a kind of have to live with that. the world is faster and if you don't get in line first, meaning the first millisecond your customer might lose out. so we always get in line first. it is essential and the idea is no, we are doing the same business we have always done. if you look at the 400 list of richest people i don't think anyone of them is a millisecond traitor. so i don't think that it's as dangerous as it may seem. >> the millisecond billionaires. >> anything can change. i don't know what the millisecond trading might someday have but i don't see it as a central issue now. >> do you see an expanded role of the government to sort of pick favorite are worse because of the social good so that you have far worse, obviously the government has given breaks to homeowners, tax breaks to inspire people to buy more

homes. but shouldn't that go beyond just building bridges and tunnels and roads and so on? part of your notion in the book, the government could get involved to inspire corporations or public works or lending for clinics or churches or community centers or whatever. >> well i think what you are describing was coined by henry clay, the american system. do you know that? henry clay was a great u.s. senator and he coined the term, the american system. so what do you imagine that is? partly it is something that i don't articulate like, high tariffs but forget that part of the american system. the other part of the american system was government involvement in promoting enterprise. the government got involved in building canals, improving harbors. this country was not laissez-faire. it had had the laissez-faire

element to it, but the laissez-faire economics came later, notably in the mid-to-late 20th century. so i don't think -- i think that it does pay to have the government that thinks -- so governor clinton in new york advocated for years supporting the area canal and it was a private investment that it had the support of the government. a wonderful thing. the government, and then the railroad, the government supported the railroads. i don't think that we want these things entirely to laissez-faire market. you have to be careful too because you can go too far. again this is my philosophy as a teacher. most things are half-truths and we don't have clear and solid laws of economics that approach

those. there'll be some role for the government but once the government has a role, there is a risk that they will be bribed or bought out and go too far. well it's a complicated world. i actually have faith that this country is moving -- and so is the whole world -- to moving forward. it is less corrupt than it used to be. we have a lot of laws and regulations that are making it harder to do these evil things and it looks complicated and it's annoying but it's civilization. >> let me ask one quick question here with two minutes left here. you write in the book that finance is not about making money. so in a minute, what is it? [laughter] >> alright, i have my own etymology. i shouldn't have my own. lookup finance in the dictionary and it comes from old french, but before that it comes from the latin word then this which

means and. different dictionaries say different things but the basic ideas that it comes somehow from when you have completed a financial deal, they would write it at the end meaning deal done. somehow that became finance. but others noting that the word feminist and ancient classical latin means and. i was wondering in english, the word and has two meanings. it means the final step, but it also means purpose. what are your ends? what are your goals? i found an old latin dictionary that it had exactly that double meaning in ancient times. so finnis meant goal, purpose. so i think what i'm thinking is that my definition of finance is, it's about financing

activities, making things happen. that means allowing people to achieve their goal. if you democratize finance, different people have different goals. some of them are religious groups. some of them are hospitals. some people want to see scientific drug rest. different people have different goals. we ought to make it possible to achieve those goals. another example i mentioned in my book, you have a child who is handicapped and the child is going to live longer then you. you want to protect this child. what you going to do? the child is unable of taking care of himself for her so you so you want to create a trust for the child. you can go to a trust company and say, i want you to manage this account for my child after i'm gone and they do that. that is part of modern finance. that is just one example of the kind of goals the people have. the problem is that most of our important goals in life take

that form. i can do it myself. i need other people to support the school and i wanted it to continue through time. it's not a goal for next year. it's a goal for 100 years or whatever. and so, that is how i define it. so finances about stewardship, protection of goals and it's about getting people to work together effectively through achievement of goals. now that is not a definition of finance you will find in any textbook. >> is from your terrific book and i told you the book was inspiring. inspiring. we are out of time. thanks robert shiller, author and economist. thanks to our audience here and on the radio and television and the internet. i'm corey johnson from the common -- commonwealth club of california. the meeting is adjourned. >> i will sign books right here.

>> up next from oklahoma city, george henderson details the challenges he faces one of the earliest african-american academics at oklahoma university. his book is race and the university. >> at first i thought well, i finally made it, mom. here i am in a nice quiet suburban university, no problems. life is going to be idyllic. wrong. i found out that this is the son downtown, that we were not allowed to be here after dark. wiki, and work that african-americans had to get out of town before the sun went down. i also found out that we have are the first african-americans to own a home. there were some people who did not want us here.

a lot of people did not want us here and then there was issue students. some of them had never been exposed to an african-american professor. they were not sure that they were going to get a quality education from me. >> what the year was this? >> 1967. i was living in detroit. my family moved to detroit and i was offered a job several places. i can hear not to accept a job but to do things. i wanted to see the football stadium and i wanted to see the indians, those two things and then i would get serious about my employment elsewhere. i came and i talked to students and talk to faculty and one student in particular, a white graduate student said do you know dr. henderson, we know you will get better offers elsewhere but we need you here. we need you to talk to us about culture and diversity and life outside of just a white bubble.

i said wow. then they said something else. do you want to be a small fish or a big fish in a small pond. might my ego is big enough or is it okay, where's my pond? that was just the beginning. i did tell my wife barbara that i was going to accept the job. she knew i was going on a vacation but when we got serious about the other more prestige universities, when i got back and told her that i had given a verbal agreement that i would teach there, she asked me one question. how much does it pay? let me put that in perspective. we had seven children and i took a 5000-dollar pay cut to come to the university of oklahoma. i'm sure my wife was thinking, now is the time to commit him to the asylum. he has really lost it. it worked out. every job that i've had in every opportunity i've had has allowed me to provide extra income so my

children, all seven of them, never really wanted for very much. that was my blessing. that was our blessing really and i always tell people, god take care of me. it didn't take the students long to realize that i indeed was not only competent but i was extremely competent. i always had high self-esteem, otherwise why should i be doing this? my mother always told me you have to be twice as good as the white professors if you are going to get anywhere. i took that to heart so i was twice as good of most of my colleagues. it's kind of like athletes. you know whether you are good or better than them. i am a teacher. i am an outstanding teacher and my students found that out very soon. impact i was nominated for an outstanding teacher award by students for five consecutive years. that was not an issue with them. my colleagues were different matter. they were split.

there was a small group of faculty members here who were committed to racial segregation. some of them went beyond segregation and wanted integration. they really wanted to be an integral part of the university. they supported me. others were sure that i was a carpetbagger from detroit and i had just come down to make trouble. i didn't help that any because one of the first public things i attended, i asked a question of the panel. i was sitting in the audience in the young man said where are you from? i said from detroit. he said why are you here? i said i'm here to teach. why are you really here? i am from detroit is a told you an black people at a national meeting in detroit and i got oklahoma. that word spread so here it was, is he real or white as he? i was dead serious. i b