The other day, I came up with an idea for minimizing the effects of politics and wishful thinking on major medical insurance rates in states that let insurance commissioners tinker with the rates: Link part of the commissioners pay to health insurer losses.
If a commissioner’s rate control actions lead to health insurers in the commissioner’s jurisdiction losing money, the commissioner ought to lose some money.
Maybe a similar approach could do some good at the Federal Reserve Board. The governors mean well, but they come out of the banking industry. Maybe most of their money is in stocks and stock funds. When they work, they probably get pay that rises with inflation. They rarely have to take out a loan, and, when they do, they’re the sort of people who got great treatment from lenders even before they went to work for the Federal Reserve System. They don’t seem to recognize that low interest rates can be a curse as well as a blessing.
See also: LTCI Watch: Chirp
A modest proposal: Persuade the Fed to get around whatever wrappings of legislation, regulation and custom protect the independence of its compensation system by agreeing to voluntarily have the governors pay for private long-term care insurance (LTCI), or pay into a fund with returns linked to what the LTCI issuers get on their assets.
Simply have the Fed governors’ LTCI policy, or LTCI-linked fund, rise and fall (especially fall) with LTCI investment account yields.
Maybe giving the Fed governors some skin in the LTCI game would give them a more balanced view of how the economy works.