.. >> piercing the idea and

eighties before most of us had seen what warren buffett could do to squeeze value out of the efficient markets. he proved the market was more volatile and emotional than predicted in 1987. then described why the dot com bobo had to pop in his book irrational exuberance. he is best known for calling the over inflated housing market. it was titled is there a bubble? he was widely blocked prices could fall by 50% but then fell 40% a dramatic fall.

what has happened it the risks that are out there robert shiller has proven that but his new book is interesting take on the potential for finance and what society could look like about the 1% or who deserves what they have we are glad to have you join us. [applause] >> you gave a number of examples to predict disaster i would like to get out of that move to. i will not predict any tonight. i want to talk from a longer

time frame how we got here and where we're going. i tell my students we have a 100 year for it -- horizon. a lot of changes are coming that it is hard to write about them but the title of my book "finance and the good society" was meant to have 10 chin because it seems like an oxymoron. it makes the rich richer as opposed to the good society. of have been teaching at yale university 25 years and teach to the world.

you can take my course by the way. it is on line. i will not mcgrady you. [laughter] i have been concerned it almost as if i have done of bad thing. that people are so angry i feel like the rotc instructor as well as asking top universities what fraction of your students went into financial-services? the general answer is 25% she questioned of that was too high princeton had 46%

you are frowning nitrogen nerve when happen to scions zero or engineering? is something wrong? i will not say what it should be but part of the reason i hope i doubt a angered some of you. i have given talks in the past and it sounds like we are apologizing. there are awful people in finance. [laughter] but the difference is there are awful people in

education but you don't read about them because they don't get rich they just get lazy. [laughter] that is not a good newspaper story. [laughter] there is the fundamental problem being so angry. we go to a worldwide miracle of economic growth. asia, middle east, latin america, even sub-saharan africa. because of our financial capital a merging into an era of financial capitalism. what is it? new methods to allocating resources and incentivizing

people to manage risk. it makes business work. i will come back metalworks with proper regulation the system is the invention developed their experience over hundreds of years. the countries that have adopted it have done well. sell the president of brazil fought he was left us the was not friendly to business. he was. it is all over. the financial crisis has created serious problems but i don't think it tips the balance that we would stop

the progress. there is a sense of some malefactors that caused the crisis. what kind of economic system? there are all kinds of people. they have not committed any crimes you want to stay away so we have to design a system that encourages them to be constructive. there are greedy people they tend to go into finance. said his said good place in

fattest is your personality. of your social path sec do not go into finance. [laughter] there are rules and regulations. you will be discovered. something that is more benign a problem that created the crisis one was the systematic vulnerability we did not have data on the interconnectedness. we did not understand the system. not well enough understood. we had a tremendous bubble

and the real-estate market. that was not appreciated. talk about human psychology from the people can be brilliant in some directions big carrot with others. somehow it was conventional wisdom i find that amazing they are smart people but they are dismisses of me asking. if i pressure them, home prices have never fallen. what about japan? the great depression? that was a long time ago we

have to fix them what should the young person do battle banks who it is the hope of our future you know, what to leave it to the sociopath there is the moral responsibility meander stand more fundamental about finance that is the science of finance with the study of psychology and sociology

also narrow economics so many different traditions are getting involved. the medical school is because they learn about the brain. people have a lot of circuits to bring out certain behaviors so if you have the impulse to be selfish items are grabbed up quickly you want to grab it before the next guy. that is part of the society that we found ways to mitigate to put them but we

can never get people they will always be egotistical amd that is the life and history of learning the state of new york created a new securities law it allowed anybody to set up a corporation with minimal restrictions. used to have to go to the legislature and secondly with limited liability and that meant if you invested and they were accused of a lawsuit could never go after your assets because you invested in the company.

before that people were afraid to invest. you had to have people you trust. a friend of david moss at us sense of pleasure. they love to gamble to find out if your number came up. people have to enjoy life to give you excitement that securities law is a source of innovation it looks selfish it dries the economy.

karl marx said it was gambling and we should shut it down. worse than that but people think maybe we have to let people indulge. i want to talk about the future and the idea is. moving into the wild future what happens tomorrow is obama's said he will sign that the jobs that. that name was misleading for political reasons. it is called jump-start the

business startup that spells jobs. [laughter] i like it as an experiment. it may or may not work well. the jobs act was created in response from internet web site providers to create a funding website for entrepreneurs. if you try a to start a business you can say i am looking for money then thousands are millions of investors all of the world can send money and you can start to a business. i think this has wild as wikipedia.

before it started to say i will open the on-line encyclopedia and anybody can add to it my first reaction that is a dumb idea. [laughter] but we learn how people can work together. what congress has done they are afraid there will be zero lot of cheats out there. you have to do documented come you cannot invest more than 2% which is $800. it is small for each individual. maximum is $10,000 is

designed to protect people only investing 800 with enough you have real capital. it reminds me and of the insight from hayak with the road to serfdom information about the economy is widely dispersed. there is the lamentable fact people think scientist or scholars everything but so many of those important things are dispersed where it is a good place and that disbursing could benefit pro i have so many eds's i

cannot get through them all. you will not see the website because it tests to go through regulatory hoops. next thing is the benefit corporation the first was created in maryland 2010. now eight states have them it is spreading. is a corporation in the original charter that defines some public benefit with fade dual mandate to make a profit this to do something for good cause and the company can write into its charter its own

definition of what social benefit it wants to pursue a that means to attracting investors are realize there is a fertilizer company. the charter says it wants to restore a healthy sodium balance. that is not what you are sympathetic to but that is the democratized where people can invest in something like that have diversity with benefit corporations. will it succeed as a for-profit. effused blur that the

benefit corporation is another experiment my guess is it will be more profitable than strictly for profit. if you tell the board of directors just made profits of our contribute to the committee as well the latter will make more profits they will have the loyalty and support of the community and the workers who feel better that this is not just about making money. i am giving two examples. i am a gain philanthropy

more rewarding experience. my students think they will be billionaires. some of them will. you never know. i fake they should give it away. it does not make sense to accumulate money carnegie said it is the gospel of 12 that there is the moral of bereday if -- imperative. it is a game. you tried to do something that stimulates and wakes you up making money is fine if you give most of the way. it does not seem very satisfying. there is something missing about philanthropy when they call you but did time.

[laughter] you do not want to give away your life for just like that. incidentally i think all of you have logged on to wikipedia. have you noticed the banners that the top? i will not ask for a show of hands but another audience said 10%. why not? you thought you would do it eventually but it is not to something you rush out to do do. but we have to think of what is more rewarding if you make $1 billion and give it

away maybe it is more a anticlimactic. i want to find a new nonprofit that i call participation nonprofit. the institution has to be created by the government. and vision this nonprofit hospital, school, college. make a tax-deductible donation that takes the form of you buying shares in the nonprofit. then it pays dividends to your account and it is yours to allocate only you cannot

spend it on yourself. i don't know of i am connecting but it seems more fun of because we are egotistical. how about letting you accumulate money in a special account as a result result, as an example you can put the money into an enterprise like wikipedia. they could get more money with the framework like that. what happens to nonprofits today are set up 100 years ago.

but it does make a profit and puts it back into the hospital. smart people know it should go oversight. let me move on to other ideas. continuous work out mortgage it should have the preplanned workout if the economy turned sour or unemployment rises what is a workout? if you cannot pay it you go back to say give me the work out. they say no. [laughter] i want it to be preplanned automatic and continuous as home prices fall your payment goes down. it is computerized automatically. that sounds strange.

it has never been done. why not? it is a free-market institution. the government only needs to regulate. just for the legitimacy. if we had continuous work out mortgages we would not have more than 10 million households under water now you do not bail-out the homeowner. not by the government but private institutions how will this work? we originator of mortgage therefore we need financial sophistication how lots of things can happen.

they could securitize the mortgages. it spreads risk and it will do that. and it does not hit them so hard. we can develop the options markets for i have to be involved to be just that. we have the chicago mercantile exchange with 10 u.s. cities including san francisco. so it is the head of the rest.

they just opened a new options market the problem is they are not working well. but in the future this is the opposite. i respect the man but he is not always right. i think they're dangerous but we can regulate and get it right to. maybe that to is all he meant. maybe like nuclear power. and the government should issue debt to. we have a huge national debt to buy the u.s. government never issued equity or shares. why not?

options, warrants, all kinds of things. let's move beyond the most conservative form of obligation we have 1 trillion and of the share of the gdp is called trills. the advantage is if we have a recession the obligation of the government goes down with the gdp. if greece had issued trills if they were leveraged there would not be a greek crisis because of the declining gdp would bail them out automatically. why do we do after the fact

bailout? with the german conservatism to say they are messed up. it to this not feel right. it should be preplanned. one more idea that i will stop going with the occupy wall street complaint 99. this refers that the top 1% the top earners saw an increase of the real after-tax earnings of almost 60% so something is going wrong with income distribution i don't see plans to deal with it. i have a plan which is

simple. in a quality insurance it is a financial concept. we should agree if any threshold of inequality is reached, we automatically raise taxes. congress decides today when 99 percent this disadvantaged we stop it we increase taxes on the top 1%. this automatic. instructions to the virus virus, change their rates to make it happen. so and a simple term might oversimplify but how much

worse the think we should let in a quality debt isn't there a limit the end it there is why can't we agree? where much more likely to succeed if we plan in advance it is like insurance the word about year house after ashes goes to the insurance agent and if we let in the quality it bad if it does have been it is

easier to do it now. i this finance and it is democratizing finance. i will turn it over. >> please feel free to send up more. you are listening to the commonwealth club radio program with robert shiller talking about his book "finance and the good society." some of the questions, which could not tell whether occupy wall street inspires you lowered scares you. >> i think it is a bigger movement a continuation of arabs bring. it was found in a madrid and after that russia with street demonstrations and it

is a democratic movement and discovery that protests can bring down government with big changes. they bring up good dissatisfaction with the inequality people have said people don't care. we know that they do. they want to make a change. put some of them seem to say my students i think they'd do something just as important to fix it from the inside.

so occupy wall street protested as if they were not seized. >> there is the same the problem was socialist is socialism but there is the notion the book lays out the idealistic roles board members, us ceos, you mentioned it but it seems the market plays of a great place to create the better outcome. >> this is where we have behavioral finance. why are ceos compensated? in the past they would do it out of the goodness of their heart so to write about the

executiveexecutive s they argue there were more heartfelt concerns to their employees and there has been a decline. our culture could emphasize caring more this that mean should remake allot against paying $50 million to the ceo? i think that is pretty high. [laughter] but it is your perspective. maybe we should not. because people are complicated. lee iacocca agreed to work for $1 win taking over at

chrysler. that is great but can we count on that? and don't think so. there is a mixture. >> sometimes it is the heart of the deal. the buyer hopes the seller. >> they want just the opposite just the two forces will arrive at better pricing. those are virtuous dick goals. >> i like my career as a college professor. i don't get into many moral dilemma is. a career salesmen -- car salesmen would be difficult. [laughter] you will be fine. [laughter] that is life.

the career of the ceo is fundamentally important there are two reasons they are paid. take some guy who is running companies 60 years old. people skills and can turn a company around. well 10,000 employees and then said i am tired. $10 million does not interest me. then $50 million to say i could get 50 million.

then start the family foundation to be pillars of the community. >> 10 million is only one house and sanford sysco. [laughter] >> the bad reason they have cronies on the board. with the shareholders to say you are a great executive. that i gave you a favor. that is crony capitalism. sarbanes-oxley tried to regulate that outside members on the compensation committee.

>> also you in the book talk about preferring stock options to make ceos but stock options with the health care qwest the stock option is a better way to go? >> spec everything is complicated. the then to make a lot of profits. but then to milk the company for profits the only ceo is only there for a few years.

that that does not work as well based on the stock price. but it is still in perfect. and it pushes the stock price up. so it has to keep experimenting to move forward. and to think about motivating will meeting people. but if you recruit-- recruit somebody it changes the atmosphere.

so there could be other ideas to come forward later. >> what role should corporate governance analysis play in the investment portfolio? >> you mean studying how it works? >> and we have not focused on bad enough. we went through up period in the united states green is good mentality predominated. it was associated with the hypophysis. in reaction and to abuses those

that filtered money to themselves. a famous quote from adam smith 17768, to the fact the baker, the butcher, the people that serve the lives to not do it out of the kindness of their hearts. he said i think it is those people that are self-described philanthropist because it is true. of some of what we get is that we've over emphasize the view of adam smith. living and up period to

evangelize to the world. put it to move to the business offices coming out a few years ago to see the change and i guess the pendulum is swinging back. we are moving out of it the favorite way to give back to the committee what level is corporate tax rate and why? there are lots of economists

who say it should be zero because of double taxation because of the firemen's pension fund has money in the stock market. what do we want to do about corporate taxation? there is a plausible argument setting it at zero those that suggest maybe it should not be. those who read the fine themselves with the partnership. but groups of lawyers or accountants but you can do that.

and other organizations make your age big organization but impose cost on society. but the fukushima and nuclear power plant caused a huge disaster now you cannot go after the shareholders that profited from a power plant not done right to then afterwards to say you cannot take it from us. the taxpayer has us to pay for it. >> should the task the said on the theoretical liability of all corporations.

>> i that you asking a very technical question. i heard discussions the optimum corporate taxation. >> ticket to why when they are taxed so low should it be so high? >> >> i will be an academic to say that is very complicated [laughter] >> good jobs legislation and the current form there was a column, about the bucket shop employment act

protecting investors so soon after worldcom and enron? >> bucket shop is the name for the institution comment in the late 19th century. it disappeared. it is where you would have the glass of whiskey with the painting of the new girl and bet on the stock prices. you smoke a cigar then you lost everything. [laughter] it may be the boiler room employment act. >> that is different. that came with a telephone. when they got long-distance

in the 1920's. the cheapest real-estate was the basement of the building, the boiler room and e make phone calls to investors and pretend they are calling from a glamorous wall street office. i have a hot new stock that will take off. that is the boiler room. it is abuses. both of the used less informed people who did not understand. they were regulated out. we have to be aware of that. fed is why this controversial idea. that it is in the act. it does have restrictions.

it cannot be unman go to the family fortune then he loses the whole thing. it cannot have been added is no more than 2 percent of your income. a fundamental protection. bucket shop and boiler rooms were serious problems in the early days but don't be too afraid of american enterprise. this might work and be an inspiration. we can change if it does not work. >> in my prior life it was finding frauds and there are those characters who will create phony stock promotion >> self regulation. we have in russia which is a

trade organization which imposes ethical standards from within the industry with continuing education to reaffirm the ethical standard. the movie clips show the stockbroker sitting in his office and says let's do something shady. i will assign this. we just will not tell anybody. now he is ruined. they are trying to remind people is a slippery slope. they do show the safest route to to getting on the

slippery slope, then it is to be squeaky clean all the time. you tell her i will not accept your signature because i cannot imagine. >> i am inspired already. >> day saint glass-steagall should be reinstated? is that a big issue? >> it was an act to create fdic and told banks they could not be involved with investment banking which is more risky. they put the two together because of the government will ensure the bank we have

to make sure they do not do the risk the thing. that was good until it was repealed them paul volcker got another version called the volcker rule brought into the dodd/frank act. these banks were bailed out by the government costing taxpayers money. he wanted to define their rule differently but it is the same idea. they cannot do proprietary trading. then you are bogged down. i don't think they are uniformly evil. i have a chapter on my book

on the lobbyist. most people are a mixture. they played out you shutdown these activities but then to provide services to the customers? you will destroy our banking system and will not be competitive. if you tinkered just a little bit to it gets functioning? i thain life is in the middle. but then with the efficient markets.

the volcker rule is difficult to discuss in a venue like this but it is not wrong for government to get involved to ask your investments are how does that continue with the ipo? >> this gives back to karl marx most people say it does not fulfil any social functions by issuing stock so what is the activity for? it turns out companies to

issue stock. >> the notion it contributes futures trading in the index creating the opportunity it is wasted activity. the question is what do we do about it? likud all but cashiers at the stores. you don't need anybody to watch you.

it seems like a tremendous waste. one left-wing economists didn't estimate. there was a a huge% a lot of things happen that do not seem wasteful. >> but then the question is everything is the perfect. so look at certain things for the system with other purposes my colleague at

yale proposed have a tax on transactions millisecomilliseco nd trading of our high frequency those that trade within 1,000 of the second so they place the buy order for one millisecond. everything is electronic. is that bad? i know the answer to everything you ask. [laughter] i think it is relatively harmless. people talk about millisecond it trading and say i don't know the big issue i do the same business.

just like the engineer now he has a computer with the millisecond are micro second and the world is faster they always get in line first. the idea is no. if you look at the "forbes" 400 i don't think anyone is the millisecond trader. >> anything can change. i don't see it as a central issue. >> the use the the expanded role to pick favored borrowers?

obviously the government has given breaks to homeowners to inspire people to buy more homes. . . of the american system was government involvement in promoting enterprise. of the government got involved in building canals and improving

harbors. they were there -- country was not laissez faire. they had the element to it, but it did -- the really las say fair economics came later. notably in the mid to late 20th century. so i don't think there's -- i think that it does pay to center a government that thinks of -- so governor clinton in new york advocated for years supporting the eerie canal and it was a private investment but it had support of the government and wonderful things. the government and then the railroads and the government supported the railroads. i don't think that we want to leave things entirely to las say fair market forces. we have to to be careful too. you can go too far. again, this is my philosophy as a teacher.

most things are have truth. and i don't have clear and solid laws in economic a that approach those of physics. there's got to be some role of the government. once the government has a role, there's a risk they'll be brided or bought out and go too far. it's a complicated world. i have actually faith that the country is moving forward, and so the whole world. is moving forward it's less corrupt that it used to be. we have lots of laws and regulations that make it harder to do evil things. it's looks complicated and annoying. it's civilization. >> let me ask, one more question. you write in the book that finance is not about making money. >> right. >> so in a minute, what is it? [laughter] >> all right. well i have my own ed models. i shouldn't have any own. >> you may. >> it's an expansive. look up finance in the

dictionary and it becomes from old french before that it comes from the latin word finif which means end. different dictionaries say different things. it comes somehow when you completed a financial deal, they would write finif at the end meaning deal done. it became finance. but other than that, the word finif in ancient latin means end. i was wondering in english, the word end has two meanings, it means final step, but it also means purpose. what are your ends, what are your goals? i found in a old latin classical latin dictionary it had exactly that double meaning in ancient fine. finif meant goal, purpose and so

i think what i'm thinking that is finance -- my definition of finance is it's about financing activities. making things happen. that means allowing people to achieve their goal, if you democracyize finance, different people have different goals. some are religious groups some are hospitals. you know, some people want to see scientific progress different people have different goals. we want to make it possible to achieve those goals. so another example, i mention this in the book, you have a child who was handy capped and the child is going to live longer than you. you want to protect the child. what are you going to do? the child is unable to take care of themselves. you want to create a trust. you can go to a trust company and say i want you to manage this economy account for my child after i'm gone. they do that. it's part of modern finance.

it's one example of the kind of goals people have. most of our important goals in life take that form. i can't do it myself. i need other people to support this goal, and i want to continue through time. it it's not a goal for next year. it's a goal for 100 years or whatever. and so that's how i define. finance is about sue wardship, protection of goals and about getting people to work together effectively to achieve goals. not a definition of finance you'll find in any textbook. >> i told you the book was inspiring, see? we're out of time. thanks robert shiller best selling author. thanks to the audience here and on the radio and the television and the internet. i'm cory johnson, the place where you're in the know is adjourned.

[applause] thank you very much. we can sign books right here. [inaudible conversations]. >> you're watching 48 hours of non-fiction authors of books on c-span's book tv. >> one of the imprints of the pension begin publishing group is viking. joining us is the director of publicity carolyn coleburn. we wanted to ask you about some of the books that are coming out in the fall of 2012 from viking. let's start with kevin phillips. >> you know him as a great historian and analyst. kevin phillips best selling author is coming out with "1775" this december. and what kevin does is he debunks the myth that 1776 was the water shed year for the american revolution. instead looks at "1775" as the pivotal year when all these events and conflicts were

happening and so analyzing "1775" and usual kevin phillips fashion, it's very nuanced, meticulous research. it will be controversial, as many of his books are. >> well, if viewers are fans of kevin phillips. he did the indepth program you can go to booktv.org and watch three hours of kevin phillips. go to the search function in the upper left-hand corner. i wanted to ask you also about another book coming out. it's mike's book "the party is over." >> i think the subtitle say it is all. it says how the republicans went crazy, the democrats became useless, and middle class got shafted. so the subtitle say it is all. mike, as many of the viewers know is 38-year veteran of capitol hill. and he just lays it all out on

what's wrong with our government. >> is that coming out before the election? >> coming out early august just in time for all the conventions, and before the election, yeah. >> caroline demarge i are. did i say that correctly any. >> yes. "for american lady." it is a biography on susan mary al sop. true american american aristocrat. he was married to joe alsop. she was, you know, the georgetown, washington, d.c., socialite. kissinger once said that more decisions and tings were made in her living room than in the white house. she really brought some many movers and shakers in the u.s. and the world together. it's a real delight. >> didn't the new biography of joe alsop just come out? >> i believe so. i think there's a play on broway too. >> what should we know about

viking. how would is viking? how long has it been around. how did it become a part of penguin. >> i think it's something like that 79, i should know the exact -- i should know the birth date of viking and i don't. i'm sorry. yrch the logo is rock well kent, the beautiful viking ship, so yeah. >> what kind of titles to do you look for authors? >> award winning nonknicks literary fiction. we enjoys the commercial fiction as well. it's a wide breadth of news makers. and we focus on books and authors that will help the dialogue and learn more and start, you know, getting people curious and . >> we're here at book expo america the annual con venges in new york city. how important is a convention like this to your business? >> i think it's incredibly

important especially now when everybody is just talking about the physical book versus the e box. it's about reading and getting excites about the books. look at all the people great covers and the bathrooms and the walking over to the other im-- imprints and hearing what people are excited about. >> as director of publicity, how has your job changed in the last couple of years with the invent of e-books andth. >> it's changes in terms of the focus on social media, on our mainstream media, you know, npr and the review coverage. really important and crucial as ever. but also, our social media campaigns have grown hugely. and i just know that we've been focusing on the social media and the blogs as a really important part of our campaign in launching a book. and the authors presence online

as well is really important. >> i want to ask you about one more well known author viking author. ray. >> how the mind works. for coming out with the book in early october. and he is such a bold futurist and in his upcoming book he talks about reverse engineering of the brain. to completely understand the brain and how that will then help us create new technology and future machines. fascinating. >> we've been talking with caroline coleburn. director of publicity at viking press. here's a look at weaks being published this week. in "little america" the war within the war of afghanistan. "washington post" author explains the war in afghanistan was troubled frat beginning due to a lack of understanding of

the country. robert marry former executive of editor of congressional carely and washington respondent looks at how presidents have been ranked throughout history. the journalists nancy profiles five convicted murders in their mission to be reintegrated into society, "lights after murder" move men in search of redemption. in "america light" how imperial academia issue ushered in the obama karates. presents his thoughts on higher education. indiana war activists who stole and burned select service records from a draft board on and succeeding court case "a story of faith and resistance. look for the titles in bookstores this coming week and

wash for the authors in the near future on book tv and on booktv.org. >> what are you reading this summer? book tv wants to know. >> it's not so much book tv because there's a non-fiction focus. i like to read thrillers. i think the one thriller that anyone will pick up and be blown away by is "gone girl." it came out yesterday, i believe. and the revies have already come in from npr and everyone, "the new york times." i would agree, it's essentially a portrait of a marriage from hell that we learn about because the wife a woman named amy disappears and at first we get her husband's perception. and we get her perspective in dairy format. and it becomes very