In a spirited defence of financial innovation written for the Financial Times, Robert Shiller highlights three examples of financial innovation beneficial to consumers.
Even the Baseline Scenario, which tried to rebut Shiller’s overall argument, was forced to pretty much agree with the value of these products:
1. Mortgages that protect consumers from a potential drop in housing prices. Most people simply want a place of their own, not a huge life-long bet on real estate. “Continuous work-out mortgages” can help solve this problem.
2. Target date investment funds that automatically adjust down risk as you get older. For basic investors, investments should be easily tailored to one’s age and investment horizon. Simple asset allocation changes, such as shifting from stocks to bonds can be automatically executed according to a age-related time table.
3. Retirement annuities that include protection against specific life risks. Retirement products could include insurance against outliving one’s wealth, high inflation, or incurring high medical costs due to extreme impairment in old age.