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The New Financial Order: Risk in the 21st Century
In his best-selling Irrational Exuberance , Robert Shiller cautioned that society's obsession with the stock market was fueling the volatility that has since made a roller coaster of the financial system. Less noted was Shiller's admonition that our infatuation with the stock market distracts us from more durable economic prospects. These lie in the hidden potential of real assets, such as income from our livelihoods and homes. But these ''ordinary riches,'' so fundamental to our well-being, are increasingly exposed to the pervasive risks of a rapidly changing global economy. This compelling and important new book presents a fresh vision for hedging risk and securing our economic future.
Shiller describes six fundamental ideas for using modern information technology and advanced financial theory to temper basic risks that have been ignored by risk management institutions--risks to the value of our jobs and our homes, to the vitality of our communities, and to the very stability of national economies. Informed by a comprehensive risk information database, this new financial order would include global markets for trading risks and exploiting myriad new financial opportunities, from inequality insurance to intergenerational social security. Just as developments in insuring risks to life, health, and catastrophe have given us a quality of life unimaginable a century ago, so Shiller's plan for securing crucial assets promises to substantially enrich our condition.
Once again providing an enormous service, Shiller gives us a powerful means to convert our ordinary riches into a level of economic security, equity, and growth never before seen. And once again, what Robert Shiller says should be read and heeded by anyone with a stake in the economy.
Shiller describes six fundamental ideas for using modern information technology and advanced financial theory to temper basic risks that have been ignored by risk management institutions--risks to the value of our jobs and our homes, to the vitality of our communities, and to the very stability of national economies. Informed by a comprehensive risk information database, this new financial order would include global markets for trading risks and exploiting myriad new financial opportunities, from inequality insurance to intergenerational social security. Just as developments in insuring risks to life, health, and catastrophe have given us a quality of life unimaginable a century ago, so Shiller's plan for securing crucial assets promises to substantially enrich our condition.
Once again providing an enormous service, Shiller gives us a powerful means to convert our ordinary riches into a level of economic security, equity, and growth never before seen. And once again, what Robert Shiller says should be read and heeded by anyone with a stake in the economy.
384 pages, Paperback
First published March 1, 2003
35 people are currently reading
1024 people want to read
About the author
Robert J. Shiller
50 books802 followersRobert James "Bob" Shiller (born Detroit, Michigan, March 29, 1946) is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management. Shiller has been a research associate of the National Bureau of Economic Research (NBER) since 1980, was Vice President of the American Economic Association in 2005, and President of the Eastern Economic Association for 2006-2007. He is also the co-founder and chief economist of the investment management firm MacroMarkets LLC.
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Displaying 1 - 13 of 13 reviews
September 30, 2016
Relative to Irrational Exuberance, which received much acclaim, The New Financial Order was not given the same sort of thumbs up. I'm a bit biased having seen him speak and thinking that many of his ways of looking at the world are quite unique. A huge fan of Shiller, I was taken aback to find that the reviews of the book were very mixed. Of course i had to read it and have my own say.
Shiller's book which proposes a "New Financial Order" does in fact provide his preliminary thoughts on how that should look. He discusses several newer financial instruments with which he has significant involvement, including his housing indices, the user of swaps as climate hedging instruments, and the IMF's attempts to get developing countries to work harder to implement the use of such derivative instruments.
Where I think the book looses its steam is in the writing. Shiller's first book was really artful in its ability to coherently and orderly express irrational exuberance. In this regard, it was a single phenomenon that was introduced and explicated using examples throughout history.
This particular book attempts to show a future of risk management that is much broader in scope. As a result, the examples are from a multitude of places to the point of seeming almost random and off point. At once he is discussing derivative, swaps, and futures in the context of climate of multinationals and unemployment. At the same time he is showing historically what has existed in those nations. The transitions are just not smooth.
The meat of what he is saying was fantastic. It truly is the case that risk is evolving and the world is innovating to a place where the sheer number of identifiable risks that exist have increased dramatically. It definitively is the case that data allows us to measure and identify these risks in ways that never before were available. And Shiller absolutely points out an important change in the advent of financial instruments that have been created to meet these demands. He even begins to show methods in which capitalism to create markets which would improve income distribution.
However, he does it in a manner that is not nearly as organized as his first book. I think this may be why the critiques of the book miss both his major points and why this book is actually unique for this time. I have to doc it points for style and suggest those that are avid fans to keep his main points in mind and dig through the pages to find the gems that Shiller is attempting to articulate.
Shiller's book which proposes a "New Financial Order" does in fact provide his preliminary thoughts on how that should look. He discusses several newer financial instruments with which he has significant involvement, including his housing indices, the user of swaps as climate hedging instruments, and the IMF's attempts to get developing countries to work harder to implement the use of such derivative instruments.
Where I think the book looses its steam is in the writing. Shiller's first book was really artful in its ability to coherently and orderly express irrational exuberance. In this regard, it was a single phenomenon that was introduced and explicated using examples throughout history.
This particular book attempts to show a future of risk management that is much broader in scope. As a result, the examples are from a multitude of places to the point of seeming almost random and off point. At once he is discussing derivative, swaps, and futures in the context of climate of multinationals and unemployment. At the same time he is showing historically what has existed in those nations. The transitions are just not smooth.
The meat of what he is saying was fantastic. It truly is the case that risk is evolving and the world is innovating to a place where the sheer number of identifiable risks that exist have increased dramatically. It definitively is the case that data allows us to measure and identify these risks in ways that never before were available. And Shiller absolutely points out an important change in the advent of financial instruments that have been created to meet these demands. He even begins to show methods in which capitalism to create markets which would improve income distribution.
However, he does it in a manner that is not nearly as organized as his first book. I think this may be why the critiques of the book miss both his major points and why this book is actually unique for this time. I have to doc it points for style and suggest those that are avid fans to keep his main points in mind and dig through the pages to find the gems that Shiller is attempting to articulate.
October 22, 2016
Those who want a positive, ethical, and thoughtful account of a number of plausible, expansive futures for the scope of financial policy in our lives will enjoy this book. It was written in 2003, and is beginning to show its age. Although many of the policies that are presented could still be pursued, it is written without the kinds of arguments, caveats, and measures that are now necessary given what we have learned about the financial crisis. It is also disappointing that that although this book attends to the risks of careers, home ownership, and national economic performance, it fails to touch on environmental risk sharing measures. However, it is neither so out-of-date or incomplete as to not be worth reading, and has suggestions that might help again appropriately frame the virtue of finance.
The overall thrust of this book is straightforward. Through the means of
* improvements within information technology, particularly database and networking technology
* the synthesis of new economic measures, in particular measures of value automatically calibrated to avoid inflation
* better use of cognitive psychology in the design of financial measures, in particular better public policy framing of risk issues
one can implement new markets, insurance products, and policies that
* guard against changes in the value of career paths
* insure against local fluctuations in home value through neighborhood changes
* peg loan payment terms to income
* stabilize the distribution of income
* alter the terms of social security to reflect the financial situation of the young and old
* provide securities tied to national economies that can diversify national risks
Some might criticize these proposals as Utopian, but I think that is mostly a result of the rhetorical choice to express these views clearly and unambiguously. This book also makes the unusual choice of providing a history of our existing social insurance measures until near the end of the book, to demonstrate that the financial history of those measures is just as unlikely and contingent as anything he is proposing. And so it is that despite the scope of proposals, the measures he describe may yet be feasible, as far stranger things have come to pass in the economic world.
The overall thrust of this book is straightforward. Through the means of
* improvements within information technology, particularly database and networking technology
* the synthesis of new economic measures, in particular measures of value automatically calibrated to avoid inflation
* better use of cognitive psychology in the design of financial measures, in particular better public policy framing of risk issues
one can implement new markets, insurance products, and policies that
* guard against changes in the value of career paths
* insure against local fluctuations in home value through neighborhood changes
* peg loan payment terms to income
* stabilize the distribution of income
* alter the terms of social security to reflect the financial situation of the young and old
* provide securities tied to national economies that can diversify national risks
Some might criticize these proposals as Utopian, but I think that is mostly a result of the rhetorical choice to express these views clearly and unambiguously. This book also makes the unusual choice of providing a history of our existing social insurance measures until near the end of the book, to demonstrate that the financial history of those measures is just as unlikely and contingent as anything he is proposing. And so it is that despite the scope of proposals, the measures he describe may yet be feasible, as far stranger things have come to pass in the economic world.
September 21, 2019
The study of economics in finance has been a great weakness for me. Even the most frequently used terms such as tax, index or corporation are unwieldy, especially when they are tossed around so casually and quickly. I think a lot of folks can relate to my elementary understanding of terminology, acronyms and commonly known ideas, e.g. what are capital, or futures markets, or percentiles & tax brackets. For the students and knowledgeable there is fluency in the language the author uses to construct his ideas while for the interested but ignorant there is slow curve toward comprehension. All this to say that I had to pause often to ponder, or go backwards to find the point, or settle even with the basics of a tricky sentence by avoiding the lesser known words and sticking to the nouns & verbs which I do know for the sake of moving on in the reading.
A great wealth of experience emanates from the mind of the author. In good hands I felt. Reframing insurance against uncertainty. Very educational. A sharp touch to the reality of the phenomena of the materially poor and materially rich. He offers clear plans. Optimistic, and far-reaching, but plans nonetheless. He’s distinguished enough for me to digress in listing the gems of practicable ideas in his book. It’s a therapy on the mind for me to consider the means to group prosperity through the financial order. Shiller spells out a new one wherein income inequality is addressed, and units of account are collected and systematized through our now highly efficient information technologies. Sharing the risk of others in similar occupations and developing the market wherein persons are guarded against such realities as war, inflation, faulty speculation, geographic risks, etc.
There are several grammatical errors, sentences with “...ours theirs...” or misspelling of names, lazy/bad editing, e.g. many sentences start with “If...” and have “...then” but the placing (or absence) of a comma or “—“ renders the sentence indigestible or difficult to comprehend. I struggled to facilitate my understanding of the terminology and technical sections so it was sometimes doubly frustrating to experience sub-par editing.
A great wealth of experience emanates from the mind of the author. In good hands I felt. Reframing insurance against uncertainty. Very educational. A sharp touch to the reality of the phenomena of the materially poor and materially rich. He offers clear plans. Optimistic, and far-reaching, but plans nonetheless. He’s distinguished enough for me to digress in listing the gems of practicable ideas in his book. It’s a therapy on the mind for me to consider the means to group prosperity through the financial order. Shiller spells out a new one wherein income inequality is addressed, and units of account are collected and systematized through our now highly efficient information technologies. Sharing the risk of others in similar occupations and developing the market wherein persons are guarded against such realities as war, inflation, faulty speculation, geographic risks, etc.
There are several grammatical errors, sentences with “...ours theirs...” or misspelling of names, lazy/bad editing, e.g. many sentences start with “If...” and have “...then” but the placing (or absence) of a comma or “—“ renders the sentence indigestible or difficult to comprehend. I struggled to facilitate my understanding of the terminology and technical sections so it was sometimes doubly frustrating to experience sub-par editing.
October 16, 2009
First published in 2003, Shiller illustrates several interesting proposals for creating markets and contracts to hedge a wide range of social and economic risks. It could be an interesting prognostication of new markets and financial innovations or a deadend given the recent problems of counterparty risk and synthetic/ derivative indices. The S&P/Case Shiller Home Price Index (HPI) and several European residential and commercial real estate indices are examples of successful implementation (however trading volume is light and largely institutional investor based). Overall an interesting read. Some of the ideas including 'inequality insurance' and centralized risk databases (GRIDs) are fraught with potential abuses by government or criminals. In addition, the implementations described are somewhat Utopian. In the end, the private market is the best test of market and risk management contract viability.
Read
December 24, 2008This book poses some interesting ideas and makes you think about possible methods to mitigate social and personal risk. Even though reality tells us that many of the Utopian ideals of this book will likely never come to be, it still is a good book that makes you think that we may be better off somewhere in the middle ground.
August 30, 2014
Some great ideas of looking towards modernising & maximising the potential of finance & technology in the 21st century!
March 8, 2019
This book is pretty boring and lacks any sort of actionable frameworks for thinking. I might try another Shiller book at some point, but not for a while.
October 20, 2019
Mr. Shiller provides a unique and insightful take on how to create better risk-sharing mechanisms in the worldwide economy.
This entire review has been hidden because of spoilers.
December 3, 2025
Brilliant!
It's time that the New Age look into these ideas. Perhaps this generation can fashion a new probable hope for humanity for the next thousand years.
It's time that the New Age look into these ideas. Perhaps this generation can fashion a new probable hope for humanity for the next thousand years.
January 13, 2020
Shiller believes in financial risk management tools for, dare I say it, socialist goals? I was expecting death by a thousand efficient market hypotheses. It turned out the whole purpose of the book is to think through how to insulate people from uncertainty. His favourite examples of financial innovations are social insurance schemes or religious taxes.
The stability provided by financial risk management is over-looked (arguably because it comes at the cost of fragility). I don't think we've really come to terms with the benefits of how grain futures smooth farmer's incomes, how institutional investors diversify the future cash flows that people use for pensions, or how life insurance protects families. The professionals managing these products are seen as greedy, leeches on the public good. Anti-finance is just modern day version of usury laws. Thankfully the critics have moved onto technology companies, and finance can get back to innovating on uncertainty reduction.
And yet there are still problems with finance. Regulatory supervision is still a mine field and many of the 2008 reforms are being relaxed. Stocks and bonds were democratised, but now the most profitable companies remain private for longer, denying normal people a share of the gains. We still have recruitment problem where the greediest, most risk-seeking people work in the industry where this is least optimal from a societal viewpoint.
But my biggest problem is with Shiller's treatment of moral hazard. He correctly identifies the income-based risks that are out of our control, but he assigns far too much importance to it. It's the progressive ideology seeping in. Expertise, hard work, personal responsibility and all those other rallying calls of the right exist and determine how our society's prosperity. This is the difference between insurance and investing--insurers are painfully aware of how their products change the incentive structure and take steps to correct this. Investors do this somewhat via corporate governance, but even then its pretty lax. Put simply, smoothing out the variation in incomes is not a goal in itself. Creating financial products that allow individuals to decide to smooth their own variation is the goal. Shiller's proposals need to be implemented by national governments and there is no individual choice.
[Post-note: Jeez this sounds conservative. My revelatory discovery of social/economic conservativism a few years ago may be seeping in]
The stability provided by financial risk management is over-looked (arguably because it comes at the cost of fragility). I don't think we've really come to terms with the benefits of how grain futures smooth farmer's incomes, how institutional investors diversify the future cash flows that people use for pensions, or how life insurance protects families. The professionals managing these products are seen as greedy, leeches on the public good. Anti-finance is just modern day version of usury laws. Thankfully the critics have moved onto technology companies, and finance can get back to innovating on uncertainty reduction.
And yet there are still problems with finance. Regulatory supervision is still a mine field and many of the 2008 reforms are being relaxed. Stocks and bonds were democratised, but now the most profitable companies remain private for longer, denying normal people a share of the gains. We still have recruitment problem where the greediest, most risk-seeking people work in the industry where this is least optimal from a societal viewpoint.
But my biggest problem is with Shiller's treatment of moral hazard. He correctly identifies the income-based risks that are out of our control, but he assigns far too much importance to it. It's the progressive ideology seeping in. Expertise, hard work, personal responsibility and all those other rallying calls of the right exist and determine how our society's prosperity. This is the difference between insurance and investing--insurers are painfully aware of how their products change the incentive structure and take steps to correct this. Investors do this somewhat via corporate governance, but even then its pretty lax. Put simply, smoothing out the variation in incomes is not a goal in itself. Creating financial products that allow individuals to decide to smooth their own variation is the goal. Shiller's proposals need to be implemented by national governments and there is no individual choice.
[Post-note: Jeez this sounds conservative. My revelatory discovery of social/economic conservativism a few years ago may be seeping in]
March 11, 2009
shorter would have been better
November 16, 2009
Got it at Princeton's bookshop. Read it while on holiday. Interesting enough to capture my attention!
May 5, 2017
JUST BRILLIANT
it might be written for more than a decade, but still, holds answers for many of today's issues
it might be written for more than a decade, but still, holds answers for many of today's issues
Displaying 1 - 13 of 13 reviews