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Irrational Exuberance: Second Edition Review

Great book based on the phrase spoken by Greenspan to try and slow down the economy.

Irrational Exuberance: Second Edition Feature

• ISBN13: 9780691123356
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
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Irrational Exuberance: Second Edition Overview

Sequels often disappoint when compared to their predecessors, but author Robert Shiller has proved the exception to the rule with his second edition of Irrational Exuberance. When the original book released in 2000, Shiller’s prescient analysis of bubble-like market behavior provided perspective on the painful meltdown of stock-price valuations that subsequently occurred. Five years later, the Yale professor’s bearish predictions about real-estate valuations are enough to give any savvy investor or homebuyer pause.

Shiller is one of several well-known economists and pundits who’ve begun a running dialogue in the last few years around the drawbacks of unchecked free markets. Few writers, though, dissect the phenomenon of bubble behavior as clearly and thoroughly as Shiller does. As with the first edition of his book, Shiller begins this one with reams of quantitative data around the late 1990s stock-market runup. This new edition adds data on real-estate price trends in the early 2000s, and points out the striking parallels between the earlier stock-market boom and bust, and current trends with housing prices in the United States. Shiller actually believes the two phenomena are related; as investors lost confidence in the stock market and moved their money into real estate, one asset class fell while the other rose. According to Shiller’s analysis, the pattern is destined to repeat itself.

Aside from the initial data, the real strength of Irrational Exuberance is the straightforward, almost clinical way in which it explains why things happen as they do. The book walks readers through structural reasons for market bubbles, then ventures into “softer” analyses which professional economists less confident than Shiller would be scared to touch. It examines cultural factors behind market bubbles, such as hype-mongering news media, and psychological factors, such as herd behavior.

Another improvement in this latest edition of Shiller’s book is his inclusion of more personal commentary, and he mentions the influence that his wife, herself a clinical psychologist, has had on his intellectual development and his view of psychological impacts on economic behavior. Other personal insights from Shiller center on experiences he had while touring and lecturing around the first book, and some of the most interesting passages are those in which he describes common questions or feedback from his audience, and what he thought in reaction–but didn’t voice while on his tour.

In the end, Shiller closes his book with an intriguing set of policy proposals. He argues for a revamping of the U.S. social security system, a new system of house-price insurance for homeowners, and risk reduction through portfolio diversification. Fans of the brainy academic will note with approval that Shiller practices what he preaches: he has begun trying to implement some of his ideas in the real world through two private consulting firms he has founded, Macro Securities Research and Macro Financial. The hope is if Shiller’s as correct with this second book as he was with his first, readers will all learn something from these new companies. –Peter Han

Irrational Exuberance: Second Edition Specifications

In this timely and prescient update of his celebrated 2000 bestseller Irrational Exuberance, Robert J. Shiller returns to the topic that gained him international fame: market volatility. Shiller breaks new ground in this second edition by laying out in even clearer and starker terms the market excesses that continue to destabilize the economy and disrupt our lives.

Having predicted the stock market collapse that began just one month after the first edition was published, he now expands the book to cover other markets that have become volatile, particularly the recently red-hot housing market. He includes a full chapter on domestic and international housing prices in historical perspective.

Shiller amasses impressive evidence to support his argument that the recent housing market boom bears many similarities to the stock market bubble of the late 1990s, and may eventually be followed by declining home prices for years to come. After stocks plummeted when the bubble burst in 2000, investors moved their money into housing. This precipitated the inflated real estate prices not only in America, but around the world, Shiller maintains. Hence, irrational exuberance did not disappear–it merely reappeared in other settings.

Building on the original edition, Shiller draws out the psychological origins of volatility in financial markets, this time folding real estate into his analysis. He broadens the evidence that investing in capital markets of all kinds in the modern free-market economy is inherently unstable-subject to the profoundly human influences captured in Alan Greenspan’s now-famous phrase, “irrational exuberance.”

The ultimate solution to this troubling condition, he maintains, would involve better-designed public institutions such as a revamped social security system, new forms of insurance to protect people’s incomes and homes, and a broader array of investment options. As was true of its predecessor, the second edition of Irrational Exuberance is destined to be widely read, discussed, and debated.

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