Advertisement
Investing

Robert Shiller Suggests a New Deal-Style Solution to Unemployment

This Yale economist, who has a fine record as a prognosticator, says we need massive federal jobs programs to get the economy moving.

If you had acted on two of Robert Shiller’s important calls over the past decade, you’d probably have more money than you do now. His 2000 book, Irrational Exuberance, warned that stocks were dangerously overpriced. A 43% decline in Standard & Poor’s 500-stock index began the month it was published. A 2005 edition of the same book warned of a bubble in housing prices. Well, you know what happened next.

Advertisement - Article continues below

A Yale University economist, Shiller is now worried about joblessness remaining high for many years -- and he advocates New Deal–style programs as a solution. “We have to create jobs, just like Franklin D. Roosevelt did,” he says. Shiller cites FDR’s Civilian Conservation Corps, which paid three million unemployed young men to do unskilled manual labor in conservation and the development of natural resources during the Great Depression.

Shiller also advocates resuming a federal revenue-sharing program that sent tens of billions of dollars to states and local governments from 1972 through 1987, with few strings attached. “States and local governments are shutting down important activities,” Shiller says. Because revenue sharing supported diverse activities, he says, the program didn’t fall into the trap of spending on the wrong things or focusing too much on a couple of “grand projects.”

Advertisement
Advertisement - Article continues below

Shiller’s proposals come at a time when Republicans are opposing new programs on the grounds that more spending would expand already-huge federal budget deficits and could eventually cause a collapse of the dollar.

Advertisement - Article continues below

Shiller argues that the debt concerns are misplaced. He agrees that the federal government needs to dramatically slow the increase in spending on health and welfare programs to put the deficit on a sustainable, long-term path. “But I don’t think dollar problems are imminent, and it would be better to stimulate the economy and put people to work than to let this prolonged period of economic weakness continue,” he says.

Fears of a double-dip recession

Shiller is more worried than most economists about a double-dip recession. He first raised his concerns in May, when the economic recovery still appeared to be gaining strength. He puts the odds of the economy falling back into recession anytime soon at less than 50/50. But he adds that a double dip “could happen in a couple of years, before we’re healed.” (The National Bureau of Economic Research, the arbiter of economic cycles in the U.S. said on September 20 that the recession that started late in 2007 ended in June 2009.)

Advertisement - Article continues below

Shiller worries that the causes of long-term joblessness haven’t been adequately addressed. Currently, a record-high 4.3% of the workforce has been unemployed for more than six months. In every recession since World War II, except the 1980 downturn, that figure dropped below 1% before another recession hit. “I’m somewhat pessimistic about the economy for the next ten years,” he says. “I think we’ll have growth, but it won’t be up to old standards.” The unemployment rate is currently 9.6%.

Advertisement
Advertisement - Article continues below

What about stocks? Shiller tracks price-earnings ratios by averaging earnings over the preceding ten years. Based on that methodology, U.S. stocks trade at 20 times earnings, a high figure. Cost-cutting, some of it unsustainable, has boosted earnings lately, he says. Shiller says you shouldn’t avoid stocks, but “you shouldn’t invest too much” in them, either.

With yields so low, he says, bonds “are very iffy.” He prescribes a balanced portfolio, including U.S. stocks and a big helping of foreign stocks, as well as bonds and commodities.

Shiller’s name has become synonymous with the housing bust, largely because of the Case-Shiller Home Price index, which he helped develop. He’s not sure which way home prices will go now, but he thinks the worst is over: “I wouldn’t hold off on buying a home if you’re a long-term buyer. Even if prices fall 10%, you’ll be locking in low mortgage rates today.”

Known for his accurate calls, Shiller is loath to make many predictions just now. “I don’t have a lot of certainty about the future except when things are at extremes,” he says. For now, Shiller doesn’t see any bubbles.

Steven T. Goldberg (bio) is an investment adviser.

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020

Recommended

13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
July 7, 2020
15 Best Fidelity Funds for the Next Bull Market
mutual funds

15 Best Fidelity Funds for the Next Bull Market

Investors looking to squeeze more profit from the next bull run can look to Fidelity funds for strong active management and tactical investments.
July 7, 2020
10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020