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I recently watched a video by Robert Shiller who seems to be a much unsung progressive economist talking about his new book Finance and the Good Society. I've always thought of him in the same class as Krugman, Stiglitz, Reich, Baker and others. What really drove me to write this diary, though in part to share a video about Finance and the Good Society, was not only the forward looking thinking in it but also the notion that one of the main criteria we need in looking for that next candidate is who they listen to. Almost everything that goes forward in politics will be tied to economic situations, or it will be about changing them.

Towards the end of the video he argues that economics, as a science, is ever so slowly, step by step, on it's way towards one day becoming a better indicator of economic behavior. He cites that this is the case with many technologies and science in general. Sometimes a better way forward is understood, but it may take many incremental developments to come about to make them possible. He is bullish that someday economics may become more of a harder science than it is now. As a critic of much of what passes for economic theory I don't think that he has any illusions that we are still a long way off from that. But, and here is what is key to the diary, he believes that over time many, many small innovations will make that possible if we are willing to try them. He cites what he sees as potential new economic innovations which have occurred over just the last two years (2010 to 2012) including wiki-like crowd sourcing by way of small investments (think Kickstarter which he doesn't mention by name). He suggests that selling a sort of warrant to investor such as Greece is now selling which pays off if Greek GDP increases over a number of years. This is modeled on the same sort of thing that Argentina used successfully after its 2002 economic collapse which encourages international investors to tie their loans not so much against a nations debt load but rather their success. If it fails, then there is no payout. He has a similar suggestion for domestic markets, more of a share in a nation's success as opposed to a bond. And he brings up others all near the end of the video.

Shiller IMHO is one of the brightest economists around today. His book Irrational Exuberance was a lonely cry in the wilderness which first predicted the stock market / tech bubble collapse at the start of G.W. Bush's first term and that recession. The 2nd edition of that book additionally predicted the housing bubble collapse which lead to the Great Recession of 2008. He was right on both of the major economic failures of the last 20 years. Shortly after the collapse of 2008, about a month after that September, I read what was his most recent book at the time, The Subprime Solution. Written earlier that year the first chapter made my hairs on the back of my neck stand on end as it sounded as if it had been written that very morning during the time when media accounts were trying to wrap their heads around what happened. Shiller had already gazed into the crystal ball as it were and stated then what others were only coming to grips with after.
I assume many of you have heard of the Case-Shiller Housing Index on Standard and Poors? It has been THE measure of the housing industry for many years. At one time they realized that nothing like it existed so they took the bull by the horns and created this widely used tool.

He has also been a strong proponent of the case that modern economics has mostly ignored the psychology of human beings when analyzing markets. It ignores greed. Most economists always assume that people will make the very best choices because it serves their best interest. He demonstrates in his work over and over that this is often wildly far from the truth and that people make irrational, emotional, or ill informed economic choices all the time. And that to ignore that is setting ones economic predictions up to fail. Just below I'll finish up by asking again, why doesn't our White House listen to Keynesian economists who have a strong track record of recognizing where markets are heading and how to use that information successfully?

Full disclosure: at this point, economically speaking, I consider Obama to be a lost cause. Perhaps one can teach an old dog new tricks, but I suspect that he is too tightly locked into his more neoliberal, Third Way economic veiw point to assume that he will change much. He listens to the likes of Simpson-Bowles, Geithner, Sumner and some suggest, Pete Peterson, turning his ear always toward the Chicago School of Economic failures and the other such supply-sided nonsense which has plagued our economy for the better part of the last 30 years. While he recognizes some of our party's economic goals through an ideology of the commonwealth of community sharing, such as a need for jobs, he still gets lost by holding mistaken such political and economic notions. He still ignores old economic blueprints from the post WWII era of high taxation and government investment which helped make us the wealthiest nation in the world. With the eminent retirement of Max Baucus again, we see an opportunity for looking towards those who might take a different tack with our nation's finances.

The point here is not so much to bash Obama as to ask who do we look to next? In some ways I'm sympathetic with Obama's economic dilemma. For instance in many ways his hands are tied in terms of job creation without a Congress that will work with him to raise the needed revenues and legislate policies from raising the minimum wage to the creation of new infrastructure to do much. But then again, he doesn't make a strong, contrary counter argument that would challenge the business-as-usual conventional wisdom of the age. Which might then push the constituents of the GOP and blue dog Democrats to insist on more flexibility and open-mindedness.

We need people to challenge those ideas. Look at how the media and the public buy into the idea that a balanced budget is the end-all be-all of government. Yet our history shows that raising debt during troubled times to prime the pump of the economy is what works. Then, when an economy is humming along that is the time to slightly raise taxes in an economy that is already creating a broader tax base to pay old debts down to manageable levels, or even create some surpluses to save for the next downturn. We need to start looking at which Democrats listen to the people cited here who make these kind of recommendations. Those who have a track record of economic predictive successes.

My point is to hopefully discuss what potential candidates for 2014 and 2016 are most likely listen to the economist so broadly invoked here. Does anyone know of any? Hillary is considered a given by many to be the next president-to-be, but I doubt that she would give them any more of an ear that Obama. I don't think she would govern in any way significantly different than Obama. She was pretty much my last choice in 2008 and I doubt that if she runs that she will change my mind this time around. Again, anyone can change but she will have to undergo a significant metamorphosis to appeal to me. This is the right time to bring up this question and to start finding who in the party has a different vision for both adhering to the FDR / Truman / Keynesian economic playbook of the 30's and 40's and looking forward to new economic innovations with all the new tools we have at hand.

Lastly, here is the video which I hope will bring about a few others to listen to Robert Shiller and his forward thinking ideas on how to start going about fixing our economy. Cheers!

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