Robert Shiller on America's 'Speculative Culture'

Given the advantage of the passage of time, historians will surely note that one of the less appreciated long-term effects of the Greenspan term at the Fed was the impact on the American culture. Few are able or willing to make this association today (and certainly no one can prove it) but a link certainly exists, at least to some extent.

Things are now changing rather dramatically (and certainly for the better), but up until the housing boom went bust a year or two ago, we were a nation overflowing with leveraged speculators and everyone seemed OK with that whole idea.

Why not? What's wrong with everyone getting rich?

You'll probably never read in the history books that European Central Bank President Jean-Claude Trichet "looked the other way" or was somehow negligent in his duties when he mumbled about something (e.g., "froth") when maybe he should have used his bully pulpit or regulatory power to discourage bad behavior (e.g., poor lending practices) that would surely, in the long-run, end badly (e.g., the bursting of the largest asset bubble in the history of mankind).

But in America, it was clearly different.

So when you read a comment like the one made by Robert Shiller the other day, you have to wonder if it was a throw-away line or if there was a darker meaning intended, more than what most people would ever read into it.

When talking about the current "housing slump" (aren't we beyond that sort of characterization yet?) Dr. Shiller noted that there's a good chance home prices will fall more than the 30 percent decline experienced during the Great Depression.

Then he commented:

Basically we’re in uncharted territory. It seems we have developed a speculative culture about housing that never existed on a national basis before.

You could have said the same thing about stocks in 2001.

Equities, however, weren't quite inclusive enough. After the turn of the century, those who didn't know the difference between Cisco Systems (CSCO) and Pets.com seemed more than willing to take the plunge on something they did understand - real estate.

This sort of thing doesn't just happen by itself. It takes an entire society changing the way they think to get an asset bubble as big as the one we had in real estate.

Real estate was (and always should be) a place to live - not an ATM machine or a retirement plan. If you work hard enough, you should be able to make a living buying houses and fixing them up or if you have good connections in the local community and plenty of "positive mental attitude", it's reasonable to expect that you could make a decent living as a realtor.

You have to wonder where we go from here now that the culture has been completely transformed - everyone expects another bubble.

Comments

[ikkyu]

You are sounding more and more like big-government dude. Greenspan is a small government dude, so i can see why you seem to detest him.

I for one don't want moralizing financial posts, that rant against what...? Speculation! I am sure all alpha-seekers are non-speculative (said in a sarcastic tone).

As a speculator I will ignore your assertion that i should not speculate in certain asset classes. You have got to be kidding right? Schiller designed a new way to engaged in leveraged speculation on real estate through housing futures.


This is another alpha-less post.

cheers from osaka....
john

[Ames Tiedeman]

America has been a speculator nation since day one. The great people who washed up on our shores 200 years ago had great dreams. These dreams were themselves speculations. Speculation, in all its forms has made America great!

[User 133274]

Speculation in all forms is good! Just be prepared to live with the consequences should you lose.

Government safety net should be expected!!!

[Johnc]

"America has been a speculator nation since day one" Amen. May it never change!

[Rhett]

Tim is right. The culture has changed so that damn near EVERYONE is (was?) ready to speculate. This IS different and it's not good.

[tokyocowboy]

agree. speculation, if it failed has a silver lining in the end, i.e.,give a good deal for another speculator. so life goes on......

[jjason]

There is a big difference between investing and speculating. The difference is in the risk (small or large) and return (small or large). One of the problems we now see is that those who took large risks in, say, single family houses have large losses AND THEY WANT SOMEONE ELSE TO COVER THEIR LOSSES. The homeowners in foreclosure, the banks who made the bad loans, the firms who packaged those loans and sold them and the people, pension funds, etc. who bought all those loans WANT SOMEONE ELSE TO COVER THEIR LOSSES.

That someone is going to be the U. S. Government! As Barry Ritholtz might say WTF...

What a bunch of sorry speculators/stupid investors there are in the US. Some will lose a lot. Some will lose a little and some will lose nothing. The game is over. It is every man/woman for himself/herself.

It is really a sorry state of affairs the country is in and no one knows how bad it is or when all the problems will be behind us.

[WAKEUP]

"Basically we’re in uncharted territory. It seems we have developed a speculative culture about housing that never existed on a national basis before." My, what a difference a few months makes! Just that long ago, I posted a couple of comments saying, (gasp !) that the housing market amounted to (in these words) "uncharted territory." Of course, this got pooh-poohed, by folks who don't appreciate such home-spun wording as "uncharted territory." They prefer "fractal analysis," et. al., to real language. Still, even as this sordid scenario CONTINUES to reveal itself for what it is (uncharted territory), "experts" and "pundits" continue to actually claim to understand what is happening, and, more importantly, continue to "FORECAST" what is COMING. Here's what is actually coming, and it is basically what I said, before, was coming: A GREATLY REDUCED STANDARD OF LIVING, FOR MILLIONS AND MILLIONS OF AMERICANS WHO GOT TOO USED TO MILKING PHONEY PROFITS OUT OF THAT MUCH OVERRATED BOX, THE HOUSE.

["Magazine-Cover-Indicator" Indicator....]

Wakeup---Yes, we are going to have a lower amount of consuming in the US, forced. The obvious mechanism is the decline in the Dollar and related change in basic necessity consumable prices, not to mention losing the bubble jobs, etc. In an even bigger picture, since we had a pronounced over-consumption, perhaps the lesser consumption level is kinda a needed adjustment, although it will feel awful for many.

[bananamax]

Wakeup ! YOU HIT THE NAIL ON THE HEAD !!!! Thank you !!
By the way ,are we not speculating already when we wake up
and get out of bed ?

[Tesh]

Life is risk. Living is speculation. That in and of itself isn't a terrible thing, since we learn from our mistakes. The trouble here is that speculators throughout the food chain want someone else (taxpayers, ultimately) to pay the consequences for their mistakes.

That's "moral hazard", and it is more akin to gambling (wanting something for nothing) than it is to living (honest work for honest pay, learning from mistakes and so on).

[johnnybill]

Call it what you want: speculation, investment, etc. It was clear to any thinking individual that the rate and speed housing was going up was a Ponzi scheme. Speculation is not purely an American trait - it's common in all socieites today. Why? This is the information age and we now have a ton of information to make our speculative decisions on. Unfortunately, most of the information is opinion and bullshit. Separate that crap from the facts, and you can become a successfull speculator and investor.

[Blutown]

Speculation is normal human behaviour without question. What worries me is speculation on basic human necesities: food, water and shelter. I'm not saying it hasn't or won't happen, just that is has profound societal consequences that we need to be prepared for (which I don't believe we are).

[User 183973]

Yes America was built on speculation(gambling),but don't count on me,a hard working clock-punching taxpayer to bail you out. I find glee in watching lazy, self serving speculators lose it all.

[bailey]

Some call it speculating others call it criminal activity. When the whole system changes from meeting a need to supplying ones economic future this is not in itself a crinal activity, but when the whole system from lenders, buyers, insurers and politicians lie to create false valuations and incomes this is criminal activity. The more time goes by the more this will be shown.

[johngonole]

I think the primary idea being that a little bit of speculation may be good, but mass speculation can be bad. When the whole economic system is propped up by debt with the idea that investing and speculation income will pay for it something is very wrong.

Greenspan is not small government. He abondoned that line of thinking long ago. Yes he has and always has made statements to the effect that the government should reduce spending and balance the budget. But he was the head of one of the worst monopoly powers this country has and the same monopoly power (The FED) that is the primary vehicle of government deficit spending. A stronger Federal Reserve could have checked government spending. The problem is Keyensian economic thinking. The idea that deficit spending in the hard times can prevent harmful corrections may indeed work. But in speculative boom times the government should do the opposite and pay down debt thus reigning in excessive speculation and spending. Instead they only spend spend and spend even more. This is what is creating inflation. Now like half the work force sits in government offices doing nothing of real productive value. Then you have all the retiress and students. A very small percentage of our population is actually productive at any given time. If one discounted the illegal immigrants that actually do most of the really hard work for almost nothing and the productivity of this country goes down even further. I say less safety nets, less government control of the economic sector, less monopolies or all sorts.

In the end monopolies wierd terrible power and they take advantage of the poor, the middle class, etc... The government is one of the most dangerous monopolies in the end. War, persecution, etc...