Phools And Their Money Are Soon Parted

Robert Shiller wrote a humorous article about political economy which makes two excellent points.  His first point is that Adam Smith's description of the economy provides only a partial picture of the real economy.  He uses some modern terminology to make his point.  We are all aware of the phishing that occurs on the Internet.  A lot of smart people have invented schemes to steal our money.  Unfortunately, much of the economic activity in the economy is dependent upon deception.  The "phishers" turn many of us into "phools" (pun intended).  They get paid a lot of money in order to convince us that we need what they have to sell.  In particular, the finance industry excels at phishing.  Shiller argues that our recent financial crisis was just one of many examples of successful phishing which led to disaster.  He second point is that the financial crisis would have been a lot worse if central bankers had not taken coordinated actions to prevent a Depression.  He argues against critics who claim that bankers would not have taken excessive risks if they had not expected central banks to bail them out.  The phools who purchased their toxic assets were indifferent to what the central banks might do.  They were phished.  The central banks may have avoided an increment in moral hazard by doing nothing but the result would have been worse.  We live in world that is quite different from Adam Smith's idea world.