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transcript24 - Financial Markets: Lecture 24 Transcript...

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Financial Markets: Lecture 24 Transcript April 23, 2008 << back Professor Robert Shiller: This is, as I said, my last lecture for this course and I'm entitling this lecture, The Democratization of Finance. I wanted to save this to the end because it's really about looking at the broad purpose of our financial markets and our financial institutions. Ultimately, there's only one purpose to all of this and that's human welfare. It's people. This should be obvious, but let's not forget that corporations exist only for the benefit of people. Normally, we say for their owners, but we could also add other stakeholders. But, it's people--individual people--that matter only, unless you want to add animals. We have non-profits that are aimed at animal welfare as well, so we'll include them. I've made it a theme of my recent books that finance is a powerful tool for improving human welfare and in my latest two books I emphasize what I call the democratization of finance. Maybe I should write this down because it's a term that I like to use--democratization of finance--or you could say for short, financial democracy, but I mean something a little different. In the 1930s, people talked about financial democracy as the shareholders voting for the direction of a corporation. I don't mean it--by that--by democratization of finance I mean bringing it to the people. There's been a long trend towards democratization of finance that goes back centuries; that is, originally financial techniques were a value only to the very rich or the very sophisticated. In 1780, the President of Harvard College had his paycheck--I think it was President Lamont-- indexed to inflation. [Correction: It was President Samuel Langdon.] I've been trying to figure out if anyone else in the world had ever had a CPI indexed labor contract and I've not been able to discover any other example. That was 1780. So, there was one person in the world who had an inflation index employment contract. Funny, who was it? It was the President of Harvard, so not a random person. As time goes by, we have more and more spread of these concepts. I make it as a mission in two of my books, New Financial Order , which is on reserve, and my new book, which I'll write here, Subprime Solution , which is not on reserve because I haven't finished it yet, but it will be out in--it will be sometime this summer. It will be available in bookstores. Apparently, well--so, the theme is that--in both these books-- is that a lot of our problems can be solved by extending--continuing this trend toward democratization of finance. We have problems with inequality--economic inequality. This is, I think, probably the most important issue facing advanced countries today--that is that we are not sharing income equally. There are a remarkable number of poor people and a small very elite group who are making hundreds of millions of dollars. In most countries of the world, inequality is getting worse. This applies both to the advanced
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transcript24 - Financial Markets: Lecture 24 Transcript...

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