Nobel-winning economist Robert Shiller is famous for spotting bubbles as they form in different markets. In 2000 he published Irrational Exuberance, a best seller that predicted the imminent bursting of the U.S. stock market bubble that had grown up around the dot-com boom. A few years later, he became one of the first to argue that U.S. real estate prices had similarly gotten out of hand, predicting the real estate and housing bust that began in 2007.
Recently in Boston speaking to the MIT Alumni Association about his new book, Phishing for Phools, written with fellow Nobel laureate George Akerlof, Shiller spoke with senior editor Nanette Byrnes about the role technology plays in the economy, and whether the next bubble might be technology itself.
Your new book is an argument that markets harm as well as help us. What reaction have you had?
On Amazon, we get about three stars out of five. But that’s because some people hate us, they give us one star and that brings it down. I think the best thing to look for on Amazon is a three-star book because that means some people don’t like it. If it’s something that everybody agrees is good, it’s probably not original. So that’s the nature of those rankings, right? That it’s the twos that really influence the number, and maybe that’s part of what we’re seeing in terms of economics in general. The world is filled with rankings now.
The title Phishing for Phools refers to the online phenomenon of phishing e-mails, and the book is about the economics of manipulation and deception broadly, practices you find to be widespread. How does technology play into that?
Technology goes both ways. One thing that’s really wonderful is we have marketplaces on the Web that have reviews by customers. You do learn from them. If someone drives an Uber car and is abusive to passengers, that will be handled very effectively. On the other hand, it creates an opportunity for big data exploitation of your weaknesses. We’re not talking about conspiracies at all. It’s people trying to make a living off of the Internet.
You are famous for identifying bubbles in housing, stocks, and other assets. What concerns you today?
If you correct for inflation, home prices are not super high. Not like where we were in 2008. I have more concern about the stock market, particularly the U.S. stock market. The market is highly priced. But the market is hard to predict. I’m worried about it, and I wouldn’t be overly exposed to it, but there are other factors that might be pushing it up, like the very low interest rates.
Something that is rarely talked about with regard to market outlook is the fear of inequality that we now have and the fear of technology. There are people that are worried about computers overtaking their jobs. If you ask, “What will your children be doing [for work] in 30 years?” People will say “I have no idea.” Are the jobs that I see around me today going to still be around? I don’t know.
MIT professor Norbert Wiener wrote a book in 1948 called Cybernetics, about computer science. He says at one point, I don’t know what to worry about more, the computer or the atomic bomb. Remember that was three years after Hiroshima and Nagasaki. So what could he mean, the computer is more dangerous than the atomic bomb? Well, exactly this, as he said, that the computer will eventually replace the jobs that people do. And this is already happening.
I view this as the challenge of our time, maybe the most important policy issue facing us, and it’s a difficult one.
The way computer technology is exploding right now with robotics and voice-activated things that answer your questions, translate them into a different language. Where will it be in 10, 20, or 30 years? I think that’s the biggest question facing our society.
The technology advances of recent years have been quite remarkable, and so have the valuations put on startup companies. Are we in a technology investing bubble?
Technology has made the biggest changes in our economy. There are people who are starting to criticize the GDP numbers and the productivity numbers because they are not estimating the impact of this new technology, not capturing it.
There are important changes underway. I’m excited and I think it’s great that we have this entrepreneurial excitement, but it does tend to produce a bubble. It’s like a powerful force, it’s hard to control. And I don’t know that we have to worry too much if we have a tech bubble burst, as long as investors are diversified.