One of the most insightful economists writing about the meltdown is Robert Shiller, of Yale. He is also one of the few economists who gets credit for predicting at least some of it. In a recent column in The New York Times he added some reflections about how the behavior of consumers and lenders led to this crisis. Here is one sobering passage:
Most people get financial advice only from sales representatives of one sort or another: real estate agents, mortgage brokers, sellers of financial products.
Some of these providers could use their sophistication to exploit people’s tendency to behave irrationally, and to manipulate the judgment errors that consumers typically make. And competitive pressures tend to make providers promote products that exploit those errors to the hilt.
His interesting proposed solution is to provide subsidized financial advice to consumers, which would especially help low income people who would otherwise get no impartial advice.
Read Shiller’s entire piece here: