Popular Attitudes Towards Markets and Democracy: Russia and United States Compared 25 Years Later

By Maxim Boycko and Robert J. Shiller

We repeat a survey we did in the waning days of the Soviet Union (Shiller, Boycko and Korobov, AER 1991) comparing attitudes towards free markets between Moscow and New York. Additional survey questions, from Gibson Duch and Tedin (J. Politics 1992) are added to compare attitudes towards democracy. Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences. While we find some differences in attitudes towards markets across countries and through time, we do not find most of the differences large or significant. Our evidence does not support a common view that the Russian personality is fundamentally illiberal or non-democratic.

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Why Is Housing Finance Still Stuck in Such a Primitive Stage?

The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has followed the financial crisis of 2007-9 has not been focused on improving the risk management of individual homeowners. This paper lists a number of barriers to housing finance innovation, and in light of these barriers, the problems of some major innovations of the past and future: self-amortizing mortgages, price-level adjusted mortgages (PLAMs), shared appreciation mortgages (SAMs), housing partnerships, and continuous workout mortgages (CWMs)

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Reflections on Finance and the Good Society

After the financial crisis that began in 2007 many have expressed renewed doubts about the basic goodness of the financial sectors, doubts related to deeply-held moral principles and traditions of larger society. We need to reconcile these doubts with financial practice. We must acknowledge the important principle of reciprocity. We must understand that there are natural human tendencies towards aggression and hoarding, which no financial institutions and codes of ethics can completely eliminate. We must appreciate the important role of professional organizations in moderating these tendencies. When these principles are made part of financial education we can expect better public acceptance of the important role that finance plays in our society.

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What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets

By Karl E. Case, Robert J. Shiller and Anne Thompson

Between the end of World War II and the year 2000, the U.S. housing market contributed much to the strength of the macro economy. It was a major source of jobs, produced consistently rising home equity, and served as perhaps the most significant channel to the real economy for monetary policy.

But starting with a drop in the S&P/Case–Shiller index for Boston in September of 2005 house prices began to fall in city after city. By the time it was over, home prices were down as much as 32% on a national basis, with many cities down by more than 50 percent, wiping nearly $7 trillion in equity off of the household balance sheet.

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Irving Fisher, Debt Deflation and Crises

It is the 100th anniversary of Irving Fisher’s 1911 book The Purchasing Power of Money. But, more important than that, it is a good time, during the current financial turmoil, to reconsider some of his theories again, in light of current events. And I think that some of his theories about variations in the purchasing power of money are very important today, have been underappreciated, and are worthy of considering anew.

In that 1911 book he described a theory of financial crises that tied them to over-borrowing during the expansion phase that preceded the crisis, and to the changes in the purchasing power of money that this expansion causes, then to the collapse in credit and the drop in the price level.

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Continuous Workout Mortgages

By Robert J. Shiller, Rafal M. Wojakowski, M. Shahid Ebrahim and Mark B. Shackleton

The ongoing crisis has exposed the vulnerability of the most sophisticated financial structures to systemic risk. This crisis—emanating from mortgage loans to borrowers with high credit risk—has devastated the capital base of financial intermediaries on both sides of the Atlantic. Its impact on the real sector of the economy has given rise to a fear and uncertainty not seen since the Great Depression of the 1930s.

The fragility of the financial intermediaries stems from the rigidity of the traditional mortgage contracts such as the Fixed Rate Mortgages (FRMs), Adjustable Rate Mortgages (ARMs) and their hybrids.

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The Case for Trills by Mark Kamstra and Robert Shiller

Abstract: "We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name "Trill" be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important new portfolio diversification strategies and, in contrast to available assets that protect relative standards of living in retirement, Trills would have virtually no counterparty risk. We believe there would be a lively appetite for the Trill from institutional investors, public and private pension funds, as well as the individual investor. "

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Read Noam Scheiber's take at the Stash blog