Sunday, January 1, 2012

Trills

Robert J. Shiller

Corporations use a combination of debt and equity to finance their investments and operations. Nations, in contrast, rely exclusively on debt. When a nation’s economy stalls and its debt continues to grow—you may have noticed this happening a lot recently—disaster looms for the country’s taxpayers. This is why Europe is in turmoil right now. But things don’t have to work this way.

Here’s an audacious alternative: Countries should replace much of their existing national debt with shares of the “earnings” of their economies. This would allow them to better manage their financial obligations and could help prevent future financial crises. It might even lower countries’ borrowing costs in the long run.

National shares would function much like corporate shares traded on stock exchanges. They would pay dividends regularly. Ideally, they’d be perpetual, although a country could always buy its shares back on the open market. The price of a share would fluctuate from day to day as new information about a country’s economy came out. The opportunity to participate in the uncertain economic growth of the issuer might well excite, rather than scare off, investors—just as it does in the stock market [..].

The advantage of keeping shares equal to a perfect trillionth of the economy is that people will know exactly what they are getting: One-trillionth of a country is real and easy to understand. That kind of clarity encourages trust that governmental shenanigans will not compromise the obligation.

For more ideas, see Parag Khanna's blog.

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That's not a bad idea. Worth looking into.

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