Unthinkable? Selling shares in Britain's economy

http://www.guardian.co.uk/commentisfree/2012/may/11/unthinkable-shares-britain-economy-editorial

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Eminent American economist Bob Shiller likes to show off a truly frightening graph. On it, he plots Britain's GDP against the value of our state pension. Strip out inflation, and national income has doubled over the past 30 years. The basic state pension on the other hand has increased only 17%. So while the country as a whole has got vastly richer, someone living on a basic state pension has fallen far behind. The solution, thinks Shiller, is a simple one: the government should sell IOUs tied not to interest rates, but to GDP. He and his colleague Mark Kamstra call these trills – because every three months they would pay a trillionth of whatever British GDP is: just under £1.50 last winter. Compare that to the current system, where the government issues bonds with the implicit promise that they will pay a fixed interest rate for the next 10 or 25 years. Amid a global crisis caused in part by financial tricksiness, it takes a brave economist to propose yet another financial innovation. But this one would help pensioners share in national prosperity. It would also align the interests of people who live off their savings – for whom inflation is a mortal enemy – with the rest of society, who don't mind rising prices as long as they come with increasing pay. And states wouldn't be lumbered with fixed-interest repayments which so many are currently finding impossible to meet. When he was over last month, Bob Shiller discussed his proposal with the Bank of England. This idea may not be so unthinkable after all.