Robert Shiller, an economist at Yale university, argues in his book Macro Markets OUP, 1994) that law makers could make life a lot less risky for their voters by encouraging financial innovation in areas of the economy that have so far been untouched by it.
Mr Shiller proposes that markets should be created that allow such 'macro' risks to be traded. For instance, securities (and, doubtless, associated futures and options) could be designed whose values change in line with shifts in, say, house prices, or movements in GDP, or the earnings of a particular profession.
How would these products help? Consider someone whose salary is closely correlated to the performance of his country's GDP. He could hedge this GDP risk by buying a pool of money with regular payments that rose when GDP rose, and fell when it fell. With that pool he could buy an instrument that promised him a steady stream of income. So if GDP fell, his income would be protected.
Enabling people to manage macro risks in this way would help them to improve their short- and long-term financial planning, allowing them to face the future with greater confidence. There might even be votes in helping people feel more secure. Arguably, governments would benefit in other ways too. Softening the impact of the economic cycle on household wealth would make macroeconomic management easier by reducing the growth of welfare payments and the fall in tax revenues in a recession.
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