Robert Shiller Advocates and Engages in NewSpeak and Dubious Analysis in NYT Piece

As an article in today’s New York Times makes clear, Robert Shiller has joined a group of behavioral economists that is advocating the use of propaganda and the sublter forms of manipulation of the public that Walter Lippmann famously called “the manufacture of consent.” In one sense, this ugly development is coming full circle. Lippmann and the so-called father of the pubilc relations industry, Eddie Bernays, were both members of the Creel Commission, which in a remarkably short period of time, turned a pacifist US into a nation eager to attack bloodthirsty, baby-bayonting Germans in the Great War. When the public became aware of the scale of the Creel Commission effort and realized how they had been played, Lippmann and Bernays wound up writing books defending this sort of effort.

Lippmann’s book Public Opnion argued, in keeping with T. S. Eliot, that human beings cannnot bear very much reality, although Lippmann based his case on the complexity of the modern world versus the limits of human cognition. Lippman contended any portrayal of events was subjecive and growing mass communication media were vehicles for manipulation. He claimed that this “manufacture of consent” was necessary for social cohesion; that the world needed to be simplified by the “well informed” so ordinary people could make decisions.

Bernays’ book Propaganda came later in the 1920s, and presented a far more benign picture, that the role of experts in helping the public navigate the public was well-intentioned and necessary, and presented numerous instances of how he had gotten various decision-makers to take up his clients’ interests by presenting persuasive information and what we would now call product imaging. But despite Bernays’ “win-win” gloss, his most famous follower was Reich Minsiter of Propaganda Joseph Goebbels.

Bernays, the nephew of Sigmund Freud, made use of psychological techniques, and the advertising industry has followed the path he blazed (I strongly recommend the four part BBC series, The Century of the Self, which you can watch on Google Video). So it isn’t surpising that behavioral economics, which was spurred by the work of psychologists Amos Tversky and Daniel Kahneman, should now be seen as a tool for elite groups and powerful interests to further their aims.

The problem, of course, is that the people who are in the role of manufacturing consent have their own interests and agendas. Lippmann pointed out how they could and did seek to present a self-flattering image.

But even if you assume, contrary to human nature, that the behind-the-scenes experts are paragons of virtue, the logic of the idea that experts can really do all that much better is circular. If the world is so complex that we are all reduced to working with mental models, or as Lippmann called it, “the pictues inside our head,” experts are also ultimaely plagued with the same problem of limited cognitive capablities as ordinary folks. The poster child of this problem is the economics profession. Thanks to the privileged policy role that economists play, the world of the new millenium, with its light regulation, more open markets, and high level of international trade, represents a large shift from the world of the 1950s and 1960s, and this redesign was overseen by the elite economists. They remained blind to the growing danger of financial system risk-taking and instability and rationalized clear warning signs, like plummeting consumer savings rates. And in the wake of the crisis, many employ rationalizations like “strucural unemployment” to divert attention from their failure to anticipate this mess and their inability to devise remedies.

It’s ironic and a bit sad that Shiller penned this appalling New York Times piece. He was one of the few economists to warn of the dangers of the housing bubble. Yet now he seems to be siding with some of the most questionable impulses of his discipline, namely, a clumsy effort at sleight of hand to defend a dubious orthodoxy. In other words, the article, which defends the manipulation of public opinion, also contains crude bits of propagandizing.

This is the second paragraph of Shiller’s article, “Bailouts, Reframed as ‘Orderly Resolutions’,“:

The criticism has emphasized the trillions of taxpayer dollars that the bailouts put at risk. But, in fact, the realized losses were minuscule when compared with the widespread suffering they averted. The net losses of the $700 billion Troubled Asset Relief Program, for example, which ran from October 2008 to October 2010, amounted to only $30 billion by the latest estimate. Yet TARP may have prevented many trillions of dollars of losses in gross domestic product.

Let’s count the intellectually dishonest arguments here:

1. As we have discussed repeatedly, the idea that TARP = total bailout costs is Big Lie, pure and simple. There have been tons of other covert subsidies, from paying the AIG credit default swaps counterparties out at 100 cents on the dollar, to the alphabet soup of Fed faciliite during the crisis, to ZIRP, QE and QE2. Negative real interest rates represent a tax on savers and investors. But Shiller simply ignores all that.

2. “Latest loss estimate” clevely implies that it is the most accurate by virtue of being the most recent. But it isn’t. The estimate Shiller cites comes from the Treasury, which has every reason to paint as pretty a picture as possible. And it has. SIGTARP’ss latest report roundly criticized Treasury for reducing its estimate of the cost of the AIG rescue by over $40 billion through a reclassification process.

3. “TARP may have prevented many trillions of dollars of losses”. This is a two for one in the truthiness camp. First, “may have prevented” gets Shiller off the hook for failing to make a definitive statement, yet plants a firm impression in the reader’s mind. In addition, it sets up a false dichotomy, TARP v. doing nothing, when the choice was TARP doing something more sensible, like shutting down sick banks, firing management, spinning off good assets and taking the bad ones and working them out.

Now the next, truly bizarre bit of positioning in the piece: Shiller takes the process outlined above, the one that was used in the US in the savings and loan crisis and in the Nordic countries during their early 1990s financial crises, and calls it “bailouts” as if that is where the risk of negative public reacion lies:

Our principal hope for dealing with the next big crisis is the Dodd-Frank Act, signed by President Obama in July. It calls for bailouts of a sort, but has reframed them so they may look better to taxpayers. Now they will be called “orderly resolutions.”

Huh? It’s widely acknowledged that Dodd Frank is too weak. In the Treasury meeting with bloggers last August, Geithner didn’t argue the point much, but instead contended that big enough capital levels, which were on the way with Basel III, were the real remedy.

It’s also widely recognized that the special resolution process in Dodd Frank is a non-starter as far as the institutions that pose the greatest systemic risk are concerned, the really big internation dealer banks. A wind-up of these firms is subject to the bankruptcy proceedings of all the foreign jurisdictions in which it operates; the US can’t wave a magic wand in Dodd Frank and make this elephant in the room vanish.

In addition, no one has found a way to resolve a major trading firm without creating major disruption. According to Andrew Ross Sorkin’s Too Big to Fail, Harvey Miller the top bankruptcy lawyer in the US, warned when Lehman was told to file for bankruptcy that even the closure of a medium-sized broker-dealer was a significant market event. Whenever you shut down a troubled trading business, the counterparties (ex derivatives coutnerparties, who get perversely favorable treatment as a result of the 2005 bankruptcy law changes) have their positions frozen until the windown process sorts out who gets how much. No trader wants to be stuck like that, so they will flee at the first sign of trouble, with the odds high that counterparties will bolt before the authorities have deciced to proceed with resolution. The run on Bear took place over the course of a mere ten days.

Shiller’s insistence that the public is so dumb as to confuse a windown with a balout reveals his lack of connection with popular perceptions. The reason the public is so angry with the baiouts is no one, particularly among the top brass, lost his job, and worse, the firms were singularly ungrateful, thumbing their noses as taxpayers and paying themselves record bonuses in 2009.

Shiller is somehow worried that people will confuse the short-term (say 2-5 year) funding of working capital while “bad bank” assets were resolved with the hated 2008 bailouts. That’s simply bizarre, Large segments of the public would probably cheer, provided no dismissed senior executives had a severance package honored (meaning they would be fired for cause, which in most contracts will nullify severance provisions). Similarly, while Congress was very unhappy to make a roughly $50 billion allocation to the Resolution Trust Corporation, it was not a flash point with the public.

The reason a resolution is not that it looks like a bailout, but that some depict it as nationalization, meaning men in beards, wearing fatigues and carrying machine guns are expropriating assets. How can Shiller forget the debate over natonalization in early 2009, when Obama came into office?

This bit is also misleading on several levels:

On a Friday in July 2008, for example, the F.D.I.C. kept IndyMac Bank alive when its survival was in doubt. The agency moved in swiftly to transform IndyMac into a bridge bank, called the IndyMac Federal Bank, and the changeover went so smoothly that many depositors might not have even noticed. The cash machines remained in operation over the weekend, and, on Monday, customers saw what seemed to be the same bank.

First, no big dealer bank is going to be resolved neatly over a weekend as Shiller suggests. Second, the “many depositors never noticed” is hugely misleading. IndyMac was notorious because unsecured depositors took huge losses. The big reason Citigroup is permanently too big to fail is that it runs a major international cash management business on which many large businesses depend. As a result, Citigroup has uninsured foreign deposits in the hundreds of billions.

Shiller goes on to discuss the merits of better “framing” in the political arena, as if the right wing haven’t been onto that since the 1970s. But his article is peculiarly reassuring. If most economists are as out of touch with public perceptions and the state of the dark art of propaganda as Shiller is, we the great unwashed public have little to fear from the economics profession jumping on the manufacture of consent bandwagon.

The one good bit of news

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  1. hermanas

    Yesterday I commented on The Baseline Scenario article “Vikram Pandit Has No Clothes” this quote from the author’s note in the David Baldacci novel The Whole Truth,
    “The term ‘perception management’ has entered the public lexicon. The Department of Defense even defines perception management in one of it’s manuals…
    Many public relations firms now offer perception management, or’PM’ as one of their services….
    PMs are not spin doctors because they don’t spin facts. They create facts and then sell them to the world as truth…
    And that to quote the venerable Mark Twain…is the difference between the lightning bug and lightning.”
    This morning reading Shiller in the Times and now this makes me think the heat is on.

    1. Glen

      There certainly have been more than a few predictions that a second round of TBTF bank bailouts is coming. So maybe there is an effort to try and set expectations prior to the bailout.

  2. LeeAnne

    Liars, thieves and murderers. The worst have pushed out their betters.We have NO leadership because of this corporately polished criminality.

    They need to be exposed one thought at a time; one NY Times article at a time.

    Thank you for reading this stuff for me.

  3. gonzomarx

    The Behavioural Insight Team is at the heart of the Cameron government and is up and running.

    “First goal of David Cameron’s ‘nudge unit’ is to encourage healthy living
    Behavioural Insight Team set up by prime minister will focus on urging people to ‘make better choices for themselves”

      1. Ina Deaver

        Actually, he’s one of the authors of the constitutional law textbooks that was used in my class. How, exactly, is he any worse than any of the rest of them? I’d say that he’s a good lawyer, perhaps a good bit better at convincing himself of the merit of his client’s position than some. I think he’s considerably less evil than Larry Summers, even if he is from the Chicago School.

  4. JW Mason

    “Negative real interest rates represent a tax on savers and investors.”

    A lot of good stuff here but I don’t understand this.

    What creditors lose from low interest rates, debtors gain, and the vast majority of Americans are debtors (have negative financial net worth), especially those of us lower down the income scale. I hate to say it, but in this context “savers and investors” looks like a bit of Newspeak itself; it really means “the rich.” And why shouldn’t we tax them?

    More broadly, why do you think the government has a moral or practical duty to guarantee the income of bondholders and other passive rentiers?

    1. Jim the Skeptic

      JW Mason says: “I hate to say it, but in this context “savers and investors” looks like a bit of Newspeak itself; it really means “the rich.” ”

      Spoken like a 25 year old.

      One of these days you will begin to set aside a few dollars on some regular basis in hopes of supplementing your future pitifully small Social Security check. Presto, you will have become a ‘saver’, ripe for the screwin’ by Mr Bernanke. You will wish for some interest to be paid so as to compensate for inflation, but the Fed will be more concerned with the banksters.

      Good luck.

      1. JW Mason

        I don’t deny that those who receive interest payments would like them to be higher. And those of use who make interest payments would like them to be lower. What I don’t understand is why it’s the job of government to help the first group at the expense of the second.

        (I also don’t understand why I should be more concerned about the rate of return on my savings, than about whether I have an income to save out of in the first place.)

        1. chris

          They want everyone to throw their hard earned cash into IRA’s so they can profit all the more. That’s also why the want to take all that social security money, so they can feed it into their gambling machine. They don’t have a conscience, and they are clueless about their criminality.

        2. jpitt42

          It’s not the government’s job to favor savers over debtors. It’s not the government’s job to favor debtors over savers either, which it clearly does. Do you think near 0% interest rates exist absent intervention?

          In addition, the reason there are so many debtors is because of the intervention. The behavior is clearly subsidized, and it’s not just the poor and middle class who are using debt. I don’t have a statistic handy, but I’d wager that most rich people got that way by levering up. The difference is that they use it as a tool to make money by somewhat sophisticated means. Meanwhile, the poor and middle class are robbed of the only mechanism for earning a return that many of them will ever grasp: earn excess cash, deposit into bank.

    2. Conscience of a Conservative

      There are different classes of savers and debtors. The government clearly is playing favorites, and to the extent that savers and debtors are using the banking system as an intermediary the banks extract a great deal of profit. Just consider Saving and check rates and CD rates, vs Mortgage and Credit card rates. And what good are lower rates to someone who has been frugal when they see far more downside on reduced returns on their savings vs a relatively small gain when refinancing a mortgage. And one last point, the vast majority of our pension fund assets are invested in callable debt, so the pension funds gain very little compared to the increased present value of the liabilities they must now fund. The whole thing stinks.

      1. liberal

        That’s exactly the point. Debtors aren’t really benefiting, at least not on the same scale that savers are suffering. Rather, the whole thing is a hidden capital infusion for the banks.

    3. Tertium Squid


      You tax what you don’t want.

      Disincentivizing saving means fewer, and weaker, savers. Fewer savers means more risk, as more people haven’t the means to protect themselves from a cash-flow crisis. This also means greater potential reliance on government welfare.

      By systematically attacking the position of savers, our government is trying to get us back to the good old days of 2005.

  5. attempter

    Lippmann and Bernays are just technicians of the ancient idea of the pious fraud, the most venerable justification for elitism and all its trappings. (In Western history, Plato was the first to explicitly describe it and give it that name, though it’s of course much older than that.)

    But as we know, it does not justify the elites, but only helps maintain them in power. That one’s power is justified on the grounds that only he has full knowledge of the things he himself is using that power to keep secret is circular reasoning, to say the least.

    And then there’s the empirical fact that throughout history almost all elites have been incompetent. Most have failed catastrophically more often than they succeeded at anything other than looting the productive people.

    Today’s elite catastrophe is merely one of the worst ever, but not untypical.

    The fact is, looting and tyranny are the only functions of any elite. Those completely comprise the real job description.

    As the post says, Shiller is “one of the better ones”. And yet as we see in this piece, he too is in the end nothing but a criminal. The same is true of all elites.

    So why don’t we compile our empirical observations and from there deduce our own anti-elite piety, and then act piously upon it?

    Antithetically to theirs, ours will have the virtue of being true.

    1. Richard Kline

      I wouldn’t say that elites are pervasively incompetent though there’s grounds to argue that position. To me, a sounder reading is that humans generally, and particularly actingin aggretate, lack versatility. We do what works; circumstances, however, change; we still do what worked. Change in behavior only comes through total failure of prior adaptation. That is the tradgedy of the elites, to bend a phrase: they achieved power through a set of institutions and actions, but cling to them as circumstances inevitably change.

      One could make the argument (and it has been done) that this conservation of prior success is in face a successful social adaptation, for it’s original context. Substistence societies don’t have a lot of room for innovation. The nut crop fails, the game runs don’t, and you’ve got a good chance of 50% mortality or better. But trying something entirely new you’ve got a chance for 100% mortality if it doesn’t work. Adapation is slow because it used to be focused around behaviors with premium survival value. We’ve gone from 5000+ generations of subsistence societies to 500+ generations of complex socities to on the order of 50+ generations of hyper complex societies without coming up with any functional way to move societies past conservation of success. Hypothetically, propaganda could be, oddly enough, a tool for transformation of social consensus to shorter timeframes and by means other than paradigmatic failure. But of course selfish interest precludes any social viability for a propaganda regime since if one lies to all of the people all of the time society disintegrates in madness (‘s happened, and it’s butt ugly). Social theory implies that small-scale democracy makes for the most permeable social aggregate to innovation while retaining sufficiently segregated social foci to limit the contation of irrationality or autarky. Good luck trying to keep the mix right.

      To circle back to the beginning, elites are never competent for any length of time because things tend to change on them. So limiting their purview and the scale of any given social aggregate has the best adaptive potential. Sounds rather like belling the cat, if I say so myself, but what’s a bloke to do? Sysiphus at least gets a workout, hey??

      1. attempter

        I guess for me to believe the elites ever bettered the condition of the people and increased their happiness in the first place (before the stagnation you discuss), I’d need to see some examples of something beneficial the elites did which could only have been done through hierarchy.

        (The competence I meant was competence at justifying their extractions by increasing the size of the entire pie faster than their own share increases, so that the absolute share of the productive people increases beyond what it would have it they’d managed themselves.

        So the trickle down Big Lie would have to be true, in the liberal way described by Rawls.)

        I’m not saying there are no exceptions to the rule (though off hand I can’t think of any), but it seems to me that every improvement in the human condition (and there’s also lots of disagreement over what qualifies as an improvement) has been accomplished by the productive people themselves, with little or no help from, and more often in spite of, parasitic elites.

      2. DownSouth

        Richard Kline,

        You say: “We’ve gone from 5000+ generations of subsistence societies to 500+ generations of complex socities to on the order of 50+ generations of hyper complex societies…”

        I think it’s more like 100,000 generations of subsistence societies before the latest 500 generations of complex societies.

        Here’s the way I conceptualize it. We’ve got the same hardware we had upon the advent of agriculture 10,000 years ago. That’s when the time clock began to run for the latest 500 generations. Biological evolution may not occur on a geological time scale, but it certainly moves at a glacial pace.

        Our software, however, is quite different than it was 10,000 years ago. Cultural evolution can occur fairly quickly, sometimes in just a few generations.

        Propaganda is like a virus. It’s creation requires an intimate knowledge of both our hardware and our software. It is malicious programming, a Trojan Horse that is designed to create a backdoor to our computer.

        To characterize those who create these viruses as “still doing what worked” in the past makes it sound as if they have no will of their own, as if they are passive victims of the changing times. I hardly think that’s an apt characterization.

        1. DownSouth

          Ha! Ha!

          Maybe this is what our hardware looks like!

          But regardless, we have to work with the hardware we’ve got, not with the hardware we wish we had.

          1. Paul Tioxon

            The set of all people by money, power and privilege that continue to make the rules, the laws and preserve for themselves from age to age their money, their power and their privileges. In addition to Plato, even more relevant to today, is Karl Rove’s regular reading material, “The Prince” By Niccolo Machiavelli. He got this habit from Lee Atwater. It would seem, that in addition to Madison Avenue expertise in selling the President like toothpaste, is something even more substantial, the understanding of the formal organizations of humanity in the form of polities. The Prince is instructed in many matters of state, diplomacy but at the heart of it all, the wielding of power in a new age where many people you suppose to place under your personal thrall have decided to have a say, a bit of self determination in what goes on in their lives from those above them in the hierarchy of the social order.


            It is clear that a regime change extends not just to the top but throughout the polity. People are set in their ways and you need to capture their hearts and minds to rule over them. Not always an easy proposition. More to point from Chapter 5 “….whoever becomes the ruler of a free city and does not destroy it, can expect to be destroyed by it, for it can always find a motive for rebellion in the name of liberty and its ancient usages, which are forgotten neither by lapse of time nor by benefits received; and whatever one does or provides, so long as the inhabitants are not separated or dispersed, THEY DO NOT FORGET THAT NAME AND THOSE USAGES, BUT APPEAL TO THEM AT ONCE IN EVERY EMERGENCY…”.

            The Tea Party’s Colonial garb, don’t tread on me flags and US Constitution appeals are, as well as the enraging fall of the rule of law covered here in the form of foreclosure fraud, are part of the political push back. Nearly all of the positioning you see as broadcast out to the 310 millions of us are from tried and true playbooks of power wielding. We appeal to the pillars of our social order, in the founding of The Republic and the continuing, reinforcing political deeds, through commonly accepted and established rules of law, that articulate our rights as citizens. This is a good thing. Putting these appeals to our freedom loving icons into the service of those who are rapidly forming cartels in finance, the Too Big To Fail consolidation of the Big 4 into the even bigger 4, with even more systemic consequences for good or ill, is part of the Machiavellian manipulation. It is not just a few rubrics, the ends justify the means, etc, but a historic overview of power, the conquering and then the follow up retention and administration of the conquered that the Prince is instructed with by the advice of Machiavelli.

            The decision of a would be conqueror to be made upon a type of people such as Americans are, with a Republic and freedom and living with clear experiences of the benefits of a social order with liberties are summed up at the end of the critically important Chapter 5: “But in republics there is greater life, greater hatred, and more desire for vengeance; they do not and cannot cast aside the memory of their ancient liberty, so that the surest way is either to lay them waste or reside in them.” This is the simple coda: RULE OR RUIN. The ruling class has a choice, either to destroy us, or live among us, they can not do both.

  6. Richard Kline

    I’m comforted by the fact that the elite and their handmaidens need to lie. Reality is not on their side. That Shiller—truly named, oh the acuity of the irony!—has curled up with them is nothing new: his entire house index concept was a tool for the banks and mortgage industry. I wouldn’t say that he’s ‘out of touch with the public;’ I’d say he and the degreed hacks of which he’s typical _don’t give a rat’s ass_ for what they public in fact perceives. He’s always been in the information management business.

    I’m less sanguine that the public is, in fact, inclined to engage with fact. That fact set includes bullet points the size of ICBM MIRV cones such as: we’ve been played; our ostensible leaders serve the rich; we’re not number one; the wealth society and trickle-down memes were both total shams, willingly lapped up by said public; we can’t go on like this; we can’t have it all; the rest of the world just isn’t going to put up with our ideological effluent any longer (prefering their own disparate varieties). The public, methinks, has no inclination to eat any of that humble pie. So what Shiller and his ilk are saying is, more or less, ‘If the public wants sugar coated prayer tickets, why not sell them some that make me rich?’ Very American, that.

    It is the American public’s desire to be lied to that makes the rich so powerful. They aren’t really, folks. This is a pluralist society with many checks, balances, and systemic encumbrances. It would be far easier to defeat the tiny cabal controlling events here and get real reform than in many, many countries since the rich, while rich, do not _directly_ control the levers of public institutional power, a critical distinction. But the public wants lies so a plurality of us keeps turning to liars. But reality is not on the side of mendacious fabulations. When we’re finally up against it, will we get wise or go apeshit? I don’t know whether it’s cynical or logical to opine that history demonstrates apeshit 5:2 or something like that. I’m not betting on an embrace of truth or even a tawdry simulacra thereof tho’ . . . .

    1. LJR

      The “rich” certainly do have a lot of power to divert flows of money into activities that are maladaptive – or at least seem so to me. If the nation were rational it would see the need to encourage research into new sources of energy that aren’t just giveaways to Iowa corn farmers.

      Bronowski ended “The Ascent of Man” with the observation that if the common man cannot end up knowing how a light bulb works “in principle” then the civilization will not survive.

      How many people can even describe in a roughly schematic way what happens when they put their card into the ATM machine? It’s all magic and it works so they use it. Most people don’t have a problem with magic – and that’s the problem, in a nutshell. We all believe that “somebody” understands it and that it will just keep on working.

      Magic works – until it doesn’t. And that’s when the average Mike calls Joe the Pro. Joe knows just enough to mutter the right incantations to make Mike’s PC work again.

      The model we use to navigate the world is always out of date and mostly wrong. This is especially true in today’s world which is busily connecting itself up into some sort of adhoc witches brew network which facilitates speed of light transactions with negligible error. Crystal Palace indeed! DNA, move over.

      There is no reason to think that the mental models of the wealthy are any better than those of the common man. In a way I suppose we should be thankful. If their models were better we would end up cleaning their toilets sooner rather than later. We know what they want – more for them, less for us.

      The sad truth is that can be said for most of us. Nothing is easier to bear than another man’s suffering.

      To transition from where we are to a more sustainable set of ideas is about as likely as tranforming a 747 to a CH-47 while it’s in the air. In other words – impossible.

      1. hermanas

        I got a buzz there LJR, thinking a transformer failure, a solar flare, hell, a computer virus can put a world of hurt on modern society. Folks should not get too far out on the ledge.

      2. Give Sympathize Control

        The ironic thing is that although the rich/elites want more for them and less for us, very few of them have any skills or knowledge or even the inclination to learn them and perform the work necessary to make modern civilization possible. If they have fantasies of returning to slavery/feudalism (or of even a “final solution” for the lower classes), they would quickly find themselves in world without electricity, gasoline, running water and sewage treatment, medical treatment, television & movies, cell phones, iGadgets, etc.

        It takes a whole lotta knowledge and education to make our standard of living. At the same time, you can’t have slaves and serfs that know too much. Or if they kill off all of the non-elites, some surviving elites are going to have to perform some tasks that they are unwilling and probably unable to do. Makes me smile. Even if they “win,” they lose.

  7. mcc777c2

    My total assets, after selling everything in a garage sale including the clothes off my back, is less than 50,000. Low interest rates punish me every day. Most middle and lower income people, like myself, excluding their house and work related pension plan, are in a similar situation.

    1. JW Mason

      Most middle and working class people receive very little interest income. 80 percent of financial wealth is owned by the richest tenth of households. What’s wrong with taxing them, via low interest rates?

      1. Tertium Squid

        Once again, you tax what you don’t want. Taxing interest income in the form of low interest rates simply chases those assets into other asset classes. So instead of lending money and having a relatively safe income from it, we had a giant orgy of casino investing.

        Listen to the NPR “Giant Pool of Money” story. It helped me get a handle on what happens because of persistent low interest rates.

    2. Matt

      Between inflation, taxing of interest on savings, and the taxing of capital gains without adjusting for inflation, there has been a negative rate of return on saving or even buying productive assets for years. The one inflation out most in the US had, the sale of principal residence without taxation of inflationary gains while tax “deducting” purchase mortgage interest, was no small part of the housing bubble.
      With 50,000 in assets you don’t have much of a dog in this hunt. Just stay away from the debt/savings arbitrage, where you borrow for housing or student loans, and receive that much less on your savings.
      There has been a negative real return on savings in the US for decades. People are just used to ignoring the effects of inflation on their principal, and expecting to “live” off the interest.

  8. Publius 10

    Yves: Whenever you shut down a troubled trading business, the counterparties (ex derivatives coutnerparties, who get perversely favorable treatment as a result of the 2005 bankruptcy law changes) have their positions frozen until the windown process sorts out who gets how much. No trader wants to be stuck like that, so they will flee at the first sign of trouble, with the odds high that counterparties will bolt before the authorities have deciced to proceed with resolution. The run on Bear took place over the course of a mere ten days.


    Why didn’t Harvey Miller discuss the use of derivatives trading orders in the Calpine and Mirant bankruptcies? Those companies had massive energy derivatives trading businesses, and counterparties did not terminate their derivatives because the court issued a first day order protecting the derivatives counterparties sufficiently that their claims remained protected, liquid, etc.

    The testimony by bankruptcy experts to Congress on using bankruptcy to address AIG and big banks didn’t discuss the use of derivatives trading orders. Nor did the 2009 ALI-ABA presentations by the bankruptcy bar on bankruptcies and big banks. The also didn’t discuss the use of the Fed to provide DIP loans to bankrupt banks.

  9. Yearning to Learn

    (I strongly recommend the four part BBC series, The Century of the Self, which you can watch on Google Video).

    I wholeheartedly agree with this statement. This is quite possibly the best documentary I’ve ever seen.

    After watching it you see that our leaders clearly use this playbook again and again… the most sad aspect however is how lazy they’ve gotten with it. At least in the past they TRIED to put together sensical arguments.

    now we just repeat dumb lines like “the wealth will trickle down” and “the taxpayer profited from TARP” and “there are WMD in Iraq” and expect the public to buy it.

    Unfortunately, they/we do believe it more often than I’d like.

    what worries me most is that as things continue to deteriorate we will likely see these macro-psychological tricks used increasingly for scapegoating. The three most obvious groups are Muslims, Latinos and Gays IMO, but there’s always room to hate another minority group too.

    “The economy is bad because God is punishing us for having Gays in the Military”

    “the economy is bad because the Muslim Terrorists are stealing our oil”

    “the economy is bad because the Mexicans are stealing our jobs”.

    This is not to say that there aren’t major problems with our policies regarding oil, terrorism, employment, etc or to say that I support illegal immigration or terrorism (I don’t).

    it is only to say that the discourse will likely be controlled similarly to how the discourse was controlled for TARP. that is, simplistically and with severe bias and outright misinformation.

    I hope I’m proven wrong.

    1. DownSouth

      Yearning to Learn said: “The three most obvious groups are Muslims, Latinos and Gays IMO…”

      Oh I don’t know, I think blacks are still very much in the running:

      Some commentators considered the decisive victory of Democratic Senator Barack Obama in the 2008 presidential election to represent the decline of Southernization in national politics.


      However, many are beginning to rethink the decline of the Southern Strategy. During the 2010 midterm elections, Republicans swept the South, successfully reelecting every Senate incumbent and electing freshman Marco Rubio in Florida and Rand Paul in Kentucky. In the House, Republicans reelected every incumbent and defeated several Democratic incumbents. Republicans are now the majority in the congressional delegations of every Southern state. Every Southern state, with the exception of Arkansas, elected or reelected Republicans governors. Republicans also took control of both houses of the Alabama and North Carolina state legislatures for the first time since Reconstruction. Many analysts believe the so-called “Southern Strategy,” that has been employed by Republicans since the 1960s is now complete, with Republicans in firm, almost total control, of political offices in the South.

  10. AR


    As to the UK ‘nudge’ commission to encourage healthy food choices and lifestyle, “changing people’s behaviour by influencing not just what they consciously think but also by influencing their “automatic processes” – cues from the subconscious, from the behaviour of people around them, and from emotional associations that affect their decisions,” as reported in the Guardian.

    Here’s the companion piece, same byline, same date:

    McDonald’s and PepsiCo to help write UK health policy
    Exclusive: Department of Health putting fast food companies at heart of policy on obesity, alcohol and diet-related disease

    The Department of Health is putting the fast food companies McDonald’s and KFC and processed food and drink manufacturers such as PepsiCo, Kellogg’s, Unilever, Mars and Diageo at the heart of writing government policy on obesity, alcohol and diet-related disease, the Guardian has learned.

    The foxes are being put in charge of de-fattening-up the hens?…..after decades of formulating products to change the worlds’ eating habits into constant snacking on organoleptically addictive sugar/salt/fat extruded food-like substance?

  11. AR

    One part of The Century of the Self that I specifically remember was the campaign by the processed food manufacturers (in the 1950’s) to train housewives to feed their families processed foods, such as canned soups, and not feel guilty about not cooking from scratch.

    Clearly there has been a 60-year assault on the human diet to the point where the norm now is to eat processed foods alone or in combination (chips and soda). This has been facilitated by wage stagnation and the two-income family, and supported by the farm bill. Add in Monsanto’s plan (devised by Arthur Andersen) for total food domination, and we see another example of elite tyranny and looting.

    [influenced by Russ]

    1. Yearning to Learn

      The part that I remember most was when Bernays re-branded cigarettes as “Freedom Sticks” by having affluent NYC debutantes walk in the 4th of July parade wielding them aloft. It was compared by the press (by Bernays himself) to the Statue of Liberty’s torch.

      doing so inexplicably (but strongly) tied smoking to the women’s liberation movement and freedom.

      prior to this, women simply did not smoke. Smoking percentages exploded in females after this campaign.

      it reminds me of after 9-11 when we re-branded the French as our enemies. It’s preposterous. The French have been our longest allies… they GAVE us the Statue of Liberty. Yet people couldn’t rename French Toast and French Fries (into “Freedom Toast” and “Freedom Fries”) fast enough. Americans somehow believed that the French were our enemies… (while embracing the Saudis)

      the French didn’t even understand, since they don’t call the stuff French Toast or French Fries anyway. (I had long conversations with my French friends explaining that Americans think that French Toast/Fries are French and that it is a supposed slight to rename them Freedom Fries/Toast).

  12. RueTheDay

    While I cannot stand doublespeak and propaganda, I think you’re being a little too harsh on Shiller here. I don’t believe that Shiller is commenting on HOW the bailouts were structured or how they SHOULD have been structured, rather, he’s commenting on what is unfortunately becoming a quite common belief amongst the uninformed public – that the bailouts themselves somehow CAUSED the economic crisis and the resultant unemployment we are no experiencing. That if we had in fact “just done nothing” that the economy would be fine right now. You are giving the public way too much credit here. The readers of this blog, or any economics oriented blog, are in no way representative of the general population. While the Tea Party isn’t exactly representative either, their carrying of “government get your socialist hands off my Medicare” signs is in fact quite representative of the general public’s inability to think clearly about these issues.

    1. scraping_by

      It’s true that the Tea Party’s not an absolute fiction. They’re real users, not paid spokesmen. Yesterday I saw my first “open carry” turkey, at a bookstore no less, so that strain of applying emotional intellegence to political/economic questions is alive and well among our neighbors.

      But the Tea Party’s not the general public. The were people recruited by the same mass marketer who created the pictures Reagan the Right Wing FDR and Clinton to Pocket Rocket from the same population that showed up and nodded before. The names lists are under constant revision and the sign kids kept in line at events. Without the amplification of TV, their true insignificance would be obvious.

      I don’t know anyone who thinks the bailouts caused the financial panic. Most people are of the opinion that it was the banks stealing while they had the chance. A little suppliment to the money they disappeared in the stock market crash. That’s why the “repayment” fabrication is getting so much current noise, to pretend they’re putting it back.

      Since it’s turned out that applying differential equations and other stupid calculus tricks to economics has turned out to be pretty much a bust, returning to a household view of the economy has its proponents.

    2. Donald Deck

      The money used for TARP would have been available to the rest of the economy, at least that’s how Dean Baker describes it. Thus the perception from the unwashed masses is pretty much spot on.
      Not sure where you were, jobs were bleeding in torrents, the bailout that was alleged to have saved the universe was followed by more people losing jobs and losing their houses. We still have a terrible number of people who are out of work, and soon to be out of their houses.

  13. rd

    The big problem that I have had, and continue to have, with the bailout is that it failed to separate the insititutions from people running the institutions. I understand the potential apocalyptic consequences of having the ifnancial sector melt-down but preventing that shouldn’t require that the people at the center of the meltdown get rewarded.

    The bankers elected to play Russian Roulette. If their institutions ended up effectively insolvent because of this, they should have walked the plank with minimal severance packages. Similarly, conditions for the pay should have been tightened up to much closer to general norms in society. Right now we are shoving cash into the banks at an alarming rate and they are simply extracting it out of the back door through massive pay packages and bonuses. It was astonishing that in the middle of a global financial apocalypse, their bonus packages were only slightly lower than the record highs. No other industry could ever have pulled that off.

    I think that we are setting ourselves up for a new crisis over the next couple of years. It will be interesting to see what the new House of Representatives will agree to do in that event. Bernanke and Treasury have largely shot their wad on what they can do, so a new TARP would be needed and this Congress doesn’t look like it would be a big fan of it.

  14. rps

    I wonder if Shiller sees that glow in the corner of his eye? It’s his career dissapation light and it’s going into overtime.

    He has plenty of company in the “Icarus fleeing the Labyrinth” lifetime membership club.

    ‘It is not the responsibility of the Federal Bank – nor would it be appropriate – to protect lenders and investors from the consequences of their decisions’. Jackson Hole 2007. Ben Bernanke

  15. Hugh

    Leo Strauss and what came to be known as the noble lie are also often brought up in kind of discussion. We live in a kleptocracy. You can not have an honest or substantial conversation on politics, economics, or behavioral science ignoring this central fact. It is like discussing the tilting deck of the Titanic without any reference to the iceberg or that the ship is sinking.

    What is so bizarre and disheartening at the same time is that this is precisely what our elites are doing. Motivations vary from the deeply cynical and manipulative to the self-serving and clueless. Similarly, there is a spectrum, albeit severely limited, as to what is going on, from there is no problem, there was a problem but its been solved, the problem is currently being solved, no need to worry move along, to we are experiencing some difficulties but we have a very good captain and crew so everything should be sorted out before long, to don’t concern yourself about the captain and crew having taken all the lifeboats, this is perfectly standard, they are able to assess the overall situation from a greater distance.

    Shiller, Krugman, many elite blogs and liberal organizations (ditto the right) may criticize aspects of the status quo from time to time, but none of them are ever going to break with an Establishment to which they belong and which has bestowed on them so many benefits. In many ways, I find the actions of Trojan horses, like Shiller, with their partial criticisms more pernicious than the true believers. Their criticisms are distractions, not meant to lead to any real or effective action. Quite the contrary. They dissipate energy and anger. They encourage purposeless venting. See, someone on the inside knows what’s going on, oh wait, maybe they don’t, maybe they do, oh look, I guess they don’t, etc. Shiller is just as much a cog in the machine of kleptocracy as a McConnell or an Obama. Some loot, some enable looting, and some distract to prevent us from reacting to the looting. Shiller, what a particularly apt name, belongs to this last group.

    1. Doug Terpstra

      Thanks, Hugh. Great insight, Shiller as shiller. Like Obama, Krugman, and others, Shiller plays good cop to put us off guard, off balance.

  16. Enkco

    Yves, this is a great post. You are the economic Chomsky. A few distracting nits you may want to fix:

    “windown with a balout”
    “the baiouts”
    “the pictues inside our head,”
    “experts are also ultimaely”

  17. F. Beard

    An economy built on confidence will, of course, depend on con-men. If we had a truly honest and thus stable economic system then the truth would be valued AT ALL TIMES.

  18. Matt

    To close the loop, Lippmann was one of the founders in 1921 of the Council on Foreign Relations, the ex head of which Peter Peterson, of whom Yves has also written, has a billion dollar trust spending money to kill US entitlements and renig on the US intergovernmental debt trust funds.
    Peterson has been employing behavioral psychologists such as Dr. Carolyn J. Lukensmeyer head of America Speaks.

  19. curious

    Also, want to thank you for this fantastic post. As a long-time reader, I personally think it ranks in the top.

    The typos show how quickly you threw this together, which only impresses more that you have so much at your fingertips. Clean it up, maybe incorporate some of the great comments, and this is a masterpiece. But as George Seldes warns, tell the truth and run. Take care! Thanks so much!

  20. bear_in_mind


    Yeoman’s work here!! Fantastic, really.

    As a companion to ‘The Century of the Self’ I might suggest viewing PBS’s Frontline episode entitled, “The Persuaders”, first broadcast during Fall 2004. Especially pertinent is the segment (“Giving Us What We Want”) exploring the work of conservative ‘strategist’ Frank Luntz.

    In an almost gleeful fashion, Luntz demonstrates his process of crafting political messaging by measuring the degree of receptiveness by viewers across the political spectrum. The objective is assent regardless of whether the message reflects the speaker’s intentions, thoughts or beliefs. It’s propaganda of the highest order without a scintilla of concern for fact, reason, or public good.

    It’s available via DVD – and streaming video online at the PBS site.

  21. MyLessThanPrimeBeef

    But even if you assume, contrary to human nature, that the behind-the-scenes experts are paragons of virtue, the logic of the idea that experts can really do all that much better is circular. If the world is so complex that we are all reduced to working with mental models, or as Lippmann called it, “the pictues inside our head,” experts are also ultimaely plagued with the same problem of limited cognitive capablities as ordinary folks.


    With all that complxicity, I used to think we have to become experts ourselves to make a reasonable decision on a subject. With this, it seems even that is not adequate. How do we approach the debate on global warming then?

  22. bear_in_mind

    Clarification – when I stated “…regardless of whether the message reflects the speaker’s intentions, thoughts or beliefs”, I was speaking to how certain messages (i.e. ‘death panels’) are used when speakers KNOW that these are, at-best, acts of paltering; or at-worst, outright fabrications.

  23. bear_in_mind


    Q: How do we approach the debate on global warming then?

    A: Move to higher ground.

    Seriously, the public is seriously limited in what choices we can make due to the scale of the problem. It has to be addressed with major changes to infrastructure. Unless there’s a popular insurrection around forcing the government, and thereby industry, to act, we’ll continue with the status quo.

    1. F. Beard

      The Earth is quite dangerous,
      the Universe too,
      for many dangers
      there’s nothing to do
      (if there’s no God,
      we’re simply screwed).

      But with CO2
      it’s simple indeed:
      no burning of carbon
      and please do not breath.

  24. Charles

    Without defending Shiller’s statement, I think that Yves is missing a couple of relevant points. I posted these previously, but of course NC gets a lot of posts.

    1) The big losses from financial panics are incurred by the economy. This is what Shiller is talking about. It is not intellectually dishonest to say that the the losses are incalculably large. I do agree that doing something sensible (like keeping people in their houses long enough for the economy to recover and for inflation to get houses up from underwater) is much, much cheaper than anything Washington has come up with.

    2) It is also not dishonest to call an orderly resolution a bailout. The FDIC does it all the time. The point of what the FDIC does is to bail out depositors, not shareholders or even bond holders. I agree with Yves that the collapse of a major bank is not going to be orderly under Dodd-Frank. It will be a nuclear bomb-style cluster—-, which is why they have so successfully blackmailed the nation into bailing them out. But Dodd-Frank at least establishes some sort of framework, rather than Treasury and the Fed deciding arbitrarily who lives and who dies.

    I do think that some of these posts e.g., invoking Joseph Goebbels, are getting to the level of saliva-flecked. I realize that you may feel, “If not now, when?”, but I suspect that we will see situations down the road for which we will wish we had conserved the saliva.

    1. mikkel

      Watch Century of the Self and then comment on the Goebbels reference — it made perfect contextual self. Bernays himself was obviously (but sociopathically) disturbed by that adoption and even complained on tape about how it ruined the word Propaganda.

  25. Mission Creep

    Most underwater laymen and women would have a hard time agreeing with or understanding the efforts to boost housing prices. Particulary with massive unemployment, QE2 is monetary policy in an attempt to boost both. So many people’s savings have vanished, houses which were intended as their retirements gone like their jobs – vanished poof! I want to blame writers like Gretchen Morgensen, an almost snotty and perverse indifference to what is really happening. Of course, didn’t we all become more indifferent, or irritated by the increasing number of homeless people as the years go by?

  26. Looking Ahead

    What does it take to bring change? The case of
    the “lost decade” of Japan, 1992-2002, is an interesting

    I read some of the book by Yoshiyuki Iwamoto:
    “JAPAN ON THE UPSWING Why the Bubble Burst and
    Japan’s Economic Renewal” in preview at Google Books.

    Chapter 7 discusses the Takenaka Scheme implemented
    around October 2002 in Japan.

    From what the author says, Takenaka had the full support
    of the Japanese Prime Minister, Junichiro Koizumi.
    Also, the Japanese stagnation started around 1992:
    ten years before the Takenaka plan.

    The Japanese newspapers wrote about the “bad loans”.
    In November 2002, Takenaka gave a speech at the
    university where Junichiro Koizumi studied.
    Takenaka gathered the support of the students there,
    from Chapter 7.

    It’s a very interesting book.

  27. Fulana

    Brilliant essay. Yves, you make really complex issues understandable and do so in a beautiful writing style.

    Thank you!

  28. Jim

    One of the most amazing things about Walter Lippmann’s perspective on public opinion was how his views foreshadowed the evolution of power and the incremental destruction of democracy in the U.S.

    Lippmann firmly believed that Democratic theory presupposed an “omnicompetent citizen” or “jack of all trades,” but in modern society, he argued, such an ideal of citizenship was obsolete.

    In a complex industrial system, government had to be carried out by officials who were expected to “conceive of a common interest.” He viewed public debate, as at most, a disagreeable necessity, not the very essence of democracy.

    The best argument for democracy–that the responsibilites of self-government would elicit unsuspected capacities in ordinary men and women–had to be abandoned, according to Lippmann, as a relic of the preindustrial past.

    Lippmann firmaly believed that all questions of substance should be left to the experts whose understanding of “scientifc knowledge” supposedly immunized them against the emotional symbols that dominated public debate.

    Well, we now live in a society ruled by the experts (who collectively transcend phoney left/right distinctions) and jointly administer large-scale production and finance, mass communications and the public bureaucracies of the state.

    Lippmann was confident that the altered conditions of industrial life, which gradually began to emerge in the 1890’s, made it inevitable that particpatory democracy could only lead to anarchy and mob rule.

    Could it really be, that in 2010, we have come to accept such an anti-democratic perspective as the truth?

  29. mannfm11

    Shiller is merely telling us that the Ivy League has moved from training business men to training liars and crooks. We must be brainwashed to not realize what they have done. Wall Street took $125 billion this year in comp. The depositors in the banking system of roughly $9 trillion got maybe 1/3 that in interest. I call that constructive Fraud, looting and theft by conversion.

  30. frances snoot

    “A woman drew her long black hair out tight
    And fiddled whisper music on those strings
    And bats with baby faces in the violet light
    Whistled, and beat their wings
    And crawled head downward down a blackened wall
    And upside down in air were towers
    Tolling reminiscent bells, that kept the hours
    And voices singing out of empty cisterns and exhausted wells”(TS Eliot)

    ‘And voices singing out of empty cisterns and exhausted wells’

  31. frances snoot

    There are two synthetic banking indices: the sdr and the dollar. The latter is to be ‘cut off’, but the former will retain relevance in transition. What Shiller is promoting is the orderly liquidation of dollar-exchange-indexed assets retained in US banks through the FDIC/Barclays securities ponzi:

    “The FDIC is expected to offer two other guaranteed securitizations backed by the residential mortgage assets of failed banks. They include $1.37 billion three-part sale and a $668 million offering that will also be underwritten by Barclays Capital, market sources said.”

    Quickly, mind you, seeing as the collateral liquidity ratio is being redefined by Basel iii:

    1. Anon

      Adam Curtis has a blog at the BBC where he posts old film clips and news footage to explore 20th century culture and politics. I’m a fan of all of his documentaries: (1992) (1995) (1999) (2002) (2004) (2007) (2009)

  32. AC_Fan

    Adam Curtis has a blog at the BBC where he posts old film clips and news footage to explore 20th century culture and politics. I’m a fan of all of his documentaries:

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