We all need some comic relief in our lives from time to time; and, in the current atmosphere of gloom and doom and dire predictions, such a respite would be more than welcome. Thanks, then, to Professor Robert Shiller of Yale University for giving us something to smile about.

Professor Shiller is no doubt best known as the co-creator and promulgator of the Case-Shiller Index, a widely quoted, though often criticized, indicator of the housing market. Writing in the current (July/August) issue of The Atlantic, Dr. Shiller addresses the topic of bubbles, as in housing bubbles. There, in an article entitled, "Infectious Exuberance" he says that too little attention has been paid to "the most fundamental cause" of the housing crisis we face today. What is that fundamental cause? It is "the contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising."

Bubbles, Shiller writes, are like epidemics. Irrationally optimistic thinking spreads like an infectious disease for which there is not a sufficient supply of antidote. "Speculative bubbles are fueled by the social contagion of boom thinking, encouraged by rising prices." "In this sort of environment, skeptics have a hard time of it. No one has perfect information, and people – quite rationally – infer a great deal from the actions of others."

Yet, Shiller observes, "Over time, the quality of information that can be gleaned from the behavior of others becomes worse and worse. Few people seem immune to boom thinking. The recent bubble grew so large partly because the very people responsible for the financial system’s oversight came to share the general public’s rosy expectations. They may not have believed as fervently in the boom, but they still accepted the idea that it would not end badly." [My emphasis]

Shiller begins his discussion by noting that bubbles and speculation based on optimism is nothing new to America. Indeed, he refers with admiration to a 1932 analysis entitled The Great American Land Bubble. He has no illusion that bubble thinking won’t be back again (and, of course, it is not solely confined to real estate). "Irrational exuberance is bound to pop up from time to time."

Well, so far, so good. Many of us might be inclined to agree that the "irrational exuberance" that characterized the recent real estate market (and the internet-crazed stock market bubble that preceded it) was based on some pretty irrational thinking, fed by bad information and a distinct lack of historical perspective. But, "Where, Bob," you might ask, "is the humor in this? What’s so funny?"

What is funny – to me at least -- is the solution that Shiller proposes. (He discusses two possibilities in the article. I shall focus only on the first one.)

Having acknowledged that we’ll surely encounter irrational exuberance again, Shiller writes, "But we can probably limit it, preventing some bubbles and keeping others smaller. Boom thinking is carried along by bad arguments and bad information. The key to [slowing its spread] is better dissemination of reliable information – something the government should focus on over the coming years." [my emphasis] That’s right folks, we should look to the government to provide us with reliable information so that we won’t go making mistakes again!

"Financial advice is in some respects like medical advice: we need both on an ongoing basis, and failure to obtain either can impose costs on society when our health – physical or financial – suffers. There’s a strong case to be made that the government should subsidize comprehensive financial advice for low- and middle-income Americans to help prevent bubbly thinking and financial overextension." There could, for example, be "accredited advisers, charging a flat fee, [who] would be partially reimbursed by the government."

One presumes that Professor Shiller is talking about the same government that has lost millions of dollars running a restaurant (the Senate dining room and cafeterias) with a captive audience. We’ve heard the jokes before; how would it be to have this new variation? "I’m from the government, and I’m here to give you financial advice."

Bubbles may, indeed, be akin to epidemics; and bad information may be a contributing cause. But let us all hope that we will be spared the cure proposed by Professor Shiller.

Published: August 7, 2008

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Bob Hunt is a director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .