Yale economist Robert Shiller says the JOBS act’s "crowdfunding" concept is freeing and Democratic but may cause some people to make financial mistakes.
The "crowdfunding" idea — embedded in the Jump-start Our Business Start-ups, or JOBS, bill signed into law by President Barack Obama — involves Web sites that help many investors contribute small amounts of capital to projects that they read about online, and that might otherwise be starved for money.
“Though the concept is being tried, in different ways, on sites like Kickstarter.com and Kiva.org, it is still very much an experiment, and its real-world benefits for small investors are still uncertain,” Shiller writes in The New York Times.
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There may well be disappointments at first, Shiller notes, but the concept can be tinkered with, like other democratizing financial innovations that have eventually delivered much good to society such as the 1811 New York law that allowed anyone who satisfied some minimal requirements to set up a corporation, with limited liability.
“The law turned out to be one of the most socially productive pieces of modern financial history,” says Shiller.
The crowdfunding concept also recalls another bit of historical financial innovation that promoted a more democratic economy, Shiller says: The Small Business Administration.
“The idea is that individuals should have an incentive to participate in the risk-taking, relieving general taxpayers of the full burden,” he says. “Finance is substantially about controlling risk.”
“If risk management is suitably democratized, and if its sophisticated tools are better dispersed throughout society, it could help reduce social inequality.”
On the other hand, economist Robert Reich calls the JOBS act a scam.
"It allows so-called 'crowdfunding' by which people whose net worth is less than $100,000 can gamble away (invest) up to 5 percent of their annual incomes in any get-rich-quick scam (start-up) that any huckster (entrepreneur) may sell them," Reich writes in his blog.
Forget the usual investor disclosures or other protections, says Reich. In the interest of “streamlining,” Congress has streamlined the way to fraud.
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