It’s just wonderful how Ritchie fails to connect his own ideas, isn’t it? On the latest Rogoff and Reinhardt paper he suggests the following:
So, of the Rienhart and Rogoff options to solving this, which include ‘debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression’ which do we choose?
As long term readers of this blog will know, I have always been relaxed about more inflation. Inflation was the basis of the baby-boomers wealth as their property debts were written off by inflation that meant they never had to really repay their mortgages. If inflation now adjusts the resulting imbalance in favour of the next generation bay boomers can hardly complain. I think it inevitable. I said so in my paper on pensions, entitled ‘Making Pensions Work‘.
OK, higher inflation. Could be a good idea, could be a bad one. But it is an idea. Certainly it would reduce the debt burden which is what is being talked about.
In addition, in Making Pensions Work I argued that pension funds should be required to invest at least 25% of all new funds the receive in assets directly related to creating employment as a condition of obtaining tax relief. Hypothecated government debt for the creation of infrastructure is the obvious way to achieve that goal. I remain of the view that this is entirely reasonable.
Eh? Note that the thing being talked about is how to reduce the debt burden. So Ritchie is arguing that to reduce the debt burden everyone’s pension should be, by law, forced into purchasing newly issued debt? This reduces the debt burden how?
And then we come to the truly delicious bit. Which is that Ritchie believes that people must invest in debt because stocks don’t return enough. Having only a 3 or 4% (including dividends) return. So he’s arguing that people must be forced to invest in bonds at the same time that he is urging higher inflation?
Doesn’t he know what inflation does to the return on bonds? And note, this isn’t just the nicking the money off the rich bastards stuff. He’s actually insisting that everyone’s pensions must be invested in bonds which are bound to lose money as a result of his higher inflation.
Doesn’t he ever think to link up his various ideas?