Here is an interesting article by Yale professor Robert Schiller (I believe, of the “Case-Schiller” index). According to him, countries are susceptible to default because they are financed 100% with debt. This is in contrast with corporations, which have equity and debt financing. So, his suggestion is that we introduce national equity shares, whose value depends on GDP.
GDP is vulnerable to mismeasurement and manipulation, so I’m not sure if it is the best measure for the value of such securities. However, I think he raises a good point - why is debt the only way for countries to raise money, and why haven’t we come up with a way for stakeholders to participate in countries’ economic success (or failure)?
interesting but how does the interest and rights of shareholders contrast with those of the citizens…following the example us citizen would be employees with a chinese sovereign weath fund board of directors
In all seriousness though, the purpose of the government is to (theoretically) ensure a fair and equitable society for all. It would seem that is mutually exclusive from having a fiduciary duty to the owners of the equity. If you think we have wonky policies now (hint: we do), then imagine how horrendous our government would become when profit maximization is the goal – Congress incentivized stock options, the President receiving multi-million dollar performance bonuses, etc. It would be as dysfunctional as it is now, only more so. Much, much more so.
Yes, you would essentially be selling government responsiveness to the highest bidder. Admittedly, it’s not so different than the way it works now, except that people are supposed to be ashamed of it.
Can you imagine what happens when there is a hostile takeover. GS corners the equity in USA Govt and then takes it private.
I also never quite understood how Shiller’s trill system would actually be paid. In order to make a payment on a percentage of GDP, you have to have the cash to do that. This means either taxing society to make trill payments to the owners (who may or may not be taxed themselves), or just printing up more cash to make the payments (or debt). None of these options looks financially sensible.
This has to be the worst possible idea on so many levels.
The point of “sovereignty” is that nation-states are allowed to break their own rules. Contracts with the state should not be expected to be enforceable because the enforcer is the party you’re dealing with. If you issue equity shares, you nominally give up sovereignty, and if needed, the state can pretty easily dissolve whatever equity claims you might have.
It’s not exactly the same as corporate equity shares. For instance, Schiller does not propose that national shareholders be given voting rights. So this would alleviate the concern that the government will be taken over by shareholders. The shares that he proposes are more like preferred stock - shareholders will receive dividends as long as the country is able to pay them.
The main point is that he wants countries to have some way of reducing their financing costs in the event of a downturn. It does not necessarily have to mirror the way equity works for corporations. He just uses that as an example.
Thanks Ohai, for the clarification. It’s been a long time since I reviewed this idea, and clearly Shiller is a smart man who must have considered some of the more obvious objections. So the preferred stock idea is closer to what I was remembering (but forgot about until you mentioned it).
I still have trouble seeing how the trills get paid. For one, the US government does not really “own” the economy the way a company owns it assets. Yes, because of sovereignty, it can theoretically use force to appropriate any part of the economy it wants, but the current regime does have liberal rights that are designed to prevent this sort of thing from happening without due process of law, and the kind of legal change that allows that would be true socialism, the scary kind, as opposed the namby pamby measures that gets tea partiers to wet their panties. It would effectively kill the economy or at least its vitality and creative destruction.
True, Shiller probably thinks that just having a small portion of the US’s budget funded by trills wouldn’t be too much of a problem and could be funded by taxing slightly higher to make trill payments, but the temptation to increase this over time would be immense.
So, personally, I think that Bob Shiller is a smart, decent guy, who perhaps occasionally writes articles while smoking a joint. He’d probably be fun to hang out with.
So wait, it’s kind of like social security from the perspective of younger generations then? You pay for some supposed ownership that is not enforceable, might get something in return (if the country can pay), and essentially are long a call option on the future of the US government?
Who in the right minds would want to invest in a country up to the eyeballs in existing debt? Ownership in the US implies you get some equity benefit right? So, that’s either tax money, or increased voting rights, or some real benefit.
And don’t get me started on management. The US would be the worst example of a horribly run management team I’ve ever seen in any entity. They can’t agree to any course of action! Imagine the CEO CFO and COO having an equal say in any decision, and their only real goal is to stay in power by bashing the other people…