A healthy bond

SiR—I heartily concur with your
leader and article advocating
index-linked bonds (May 27th).
But governments should not fear
that they would lose every means
to manipulate the bargain. The
first means is taxation of capital
gains, unless these are also
indexed for tax purposes. Another
is the technical calculation of the
inflator—unless a party other
than government is entrusted
with that calculation.

All that notwithstanding,
much would be learned from the
markets’ assessrnent of the infla-
tion risk premium. That judg-
ment is probably widely dis-
persed, so that substantial capital
should be forthcoming at very
low real interest rates. Given these
virtues, one wonders how many
governments are perhaps .de-
terred by precise measures. of
investors’ scepticism about the
stability of theircurrencies. ~~“:
New York JosHUA LEDERBERG
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forse,
THE ECONOMIST JULY 157 1995