What's A Bubble? | WAMU 88.5 - American University Radio
Filed Under:

What's A Bubble?

Play associated audio

Robert Shiller was surprised when he got the call telling him he'd won the Nobel Memorial Prize in economics — surprised that he'd won (of course), but also surprised that he was sharing the award with Eugene Fama.

"He and I seem to have very different views," Shiller told me. "It's like we're different religions."

In particular, they have very different views about economic bubbles.

"The word 'bubble' drives me nuts, frankly," Fama told me.

Fama believes markets are basically rational. At any given moment, he says, prices reflect the collective wisdom of everyone in the market. If it were clear that prices were irrationally inflated, investors would stop buying en masse — and prevent a bubble from getting out of control, he says.

Shiller, on the other hand, is famous for describing bubbles, and for predicting the two big ones of our time — the dot com bubble and the housing bubble.

Fama is unimpressed. "What happens each time is the media goes in and finds somebody who predicted it and that person gets anointed," he says. "You don't go back and look at past predictions and see, 'Is this just luck?'"

Fama says if Shiller could predict, say, the next 10 bubbles, he would be convinced. Shiller says he thinks he probably could predict the next 10 — if he lived long enough.

This is more than an academic debate. If you believe bubbles are predictable then maybe you can slow or stop them. If you think they're hard or impossible to spot, there's not much to be done.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

WAMU 88.5

Art Beat With Lauren Landau, July 28

You can see two solo exhibits featuring work that speaks in metaphor.
NPR

Fast-Food Scandal Revives China's Food Safety Anxieties

An American-owned company that supplies meat to fast-food chains in China has pulled all its products made by a subsidiary. An expose revealed some of the products were mishandled and had expired.
NPR

When Did Companies Become People? Excavating The Legal Evolution

The Supreme Court has been granting more rights to corporations, including some regarded as those solely for individuals. But Nina Totenberg finds the company-to-person shift has a long history.
NPR

What It's Like To Own Your Very Own Harrier Jump Jet

The Harrier Jump Jet is known for vertical take-offs and landings. It also has an accident-prone track record, but that didn't dissuade one pilot from buying his dream plane.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.