Unlike many economists who seem unaware that their discipline has lost much of its credibility in recent years, Shiller is appropriately distraught at the seeming disconnect between economics and real-world social concerns.
“My own university, Yale, used to have a department of sociology, economics, and Government,” Shiller told me. “And in 1927 they split them into three departments. I think that was a momentous institutional change — it allowed economics to be cut off from other disciplines. Now they’re in separate buildings. You have to walk some distance. It’s utterly amazing to me how rarely economists quote the greats in psychology or sociology. Maybe they’re read them, but they’re not in their active mind.”
Shiller makes a powerful case that, while recent scandals make it easy to forget, financial innovation has done a lot of social good. As as an example he cites the creation of insurance. Because of it, almost everyone — not just the rich — can bounce back after an accident, fire, theft, or other calamity. In the past, such hardships could financially ruin a family forever.
Some interesting history here. Compared to the natural sciences, the social sciences have a relatively short history. It was only in the early 1900s that disciplines like sociology began to emerge in their own right.
From a sociologist’s point of view, it seems incomplete to only examine financial principles and transactions without the broader understanding of social motivations, interactions, and life. I wonder if sociologists wouldn’t argue that sociology encompasses more of the other social sciences than economics or psychology do, harkening back to Comte’s idea of sociology as the “queen of the sciences.”