Economist Robert Shiller became a household name when he published his previous bestseller Irrational Exuberance just as the dot.com boom was peaking. In The New Financial Order, he capitalizes on his celebrity to put forward a thoughtful, detailed proposal for managing economic risks. This highly readable book portrays a future in which many serious individual financial risks are dispersed to savvy global investors, thanks to technology. Imagine violinists being able to insure their careers in addition to their Stradivarius instruments, developing countries securing generous loans from the first world by tying the repayment schedules to their future GDPs and a revamped tax system preventing the gap between rich and poor from widening. We ....suggest this book to risk-management professionals who want to step back and look at the big picture, as well as to anyone who has a stake in creating new financial products to meet twenty-first century needs.
on 12 January 2007
The wheel's invention first took place a few thousands years ago in the the Fertile Crescent region, now occupied by Iran and Iraq. As with any now seemingly obvious invention, it's probable that the development would have encountered resistance, bemusement and mockery from stakeholders. Perhaps, for example, communities of farmhands might have tried to outlaw the wheel because one of its potential utilisations in harvesting may reduce the manual workload. Others may have ridiculed it as unnatural or thought the wheel pointless because of the lack of what we would now call 'roads.'
It is easy to forget that many of our modern goods and services were once abstract ideas requiring invention, innovation, sacrifice, and struggle prior to their acceptance. The realm of risk and finance is no exception, baring in mind that there were no stock markets, futures exchanges or welfare programmes in the Garden of Eden - between then and now human vision and persistence has made them possible.
The author invites us to become economic visionaries ourselves, contemplating where modern facilitative technologies may take risk management in the 21st century. His own conceptualisations feature inequality insurance; house-value insurance; income-linked loans and other notions that may seem illogical at first, but make perfect sense to those with modest understandings of the ebb and flow of economic history.
Each of his concepts are accompanied by practical and theoretical input relating to their enactment. Emphasis is placed on mechanisms developed in the fields of cognitive and social psychology in order to outline means to encourage social acceptance of risk devices. Lessons are also derived from past financial innovations including social security, pension rights and life insurance, which serve as practical guides as well as interesting historical lessons.
The New Financial Order is economics at its best, combining theory, philosophy and history to propose solutions rather than merely identify problems. It takes a lot of courage to play the role of 'financial futurist' and Shiller's effort should certainly be commended!'