We tend to think financial repression is not the answer

Daniela Gabor, a professor at SOAS, has a solution for Britain’s bond market woes:

A progressive government could use the recent Pension Schemes Act 2026, which gives governments power to mandate pension fund investments in the UK economy, to channel our savings towards financing public ownership of essential services such as housing, water and transport….. channelling workers’ capital into public essentials – these are hard political choices, but they exist.

This is known as financial repression. Do not allow people to invest where their money does the most good for them - the investors - or their investments, but where government would prefer to waste the money instead. This has been a feature of the Chinese economy these past decades and is also one of the reasons why households there save up to 40% of their incomes. Because the returns on investment are so bad they’ve got to save humongous amounts to pay for their own pensions and elderly health care. Having to save that much is, of course, a significant impact upon current living standards.

The basic idea here is that government, having run out of ability to plunder our incomes, should now do the same to our savings, capital and wealth. We suggest that’s a bad idea. Tempting for government, of course, having run out of how much of our incomes we’ll let them have, but a bad idea all the same.

SOAS and economics. Tsk.

Tim Worstall