The Case for the American Sovereign Wealth Fund

We’ve seen it many times. The natural disasters, the foreign entanglements, the income inequality. All reasons for people to want the government to spend more money, yet nobody wants the government to actually spend any more money! Spending more money requires either raising taxes or raising deficits, both of which are undesirable to the American People.

So, what is the solution? Could it be so simple that other countries have already discovered it?

America, I raise you the Sovereign Wealth Fund.

How It Works

Sovereign Wealth Funds (SWF’s) are essentially State-run hedge funds. They are funds set aside by a nation’s government to grow, separate from their budget, to be used for a specific purpose or purposes.

These funds are typically created two ways. A country can have a significant Current Account Surplus (trade surplus), usually resulting from that country specializing in one industry and dominating that market. Think Germany with Automobiles or East Asia with Tech Hardware. The second way SWF’s are typically created is through a Commodity Surplus. The nation’s government would own a corporation that sells that commodity, and sets aside some of the profits for the fund. Examples of this would be the Oil-rich countries of the Middle East, with some of the largest SWF’s located in Qatar and the United Arab Emirates.

Sovereign Wealth Funds are able to invest this money and let it grow over time. Countries will use their SWF’s to invest in their own Bonds, to build infrastructure, as well as financial instruments worldwide, including Foreign & Domestic Stocks. Norway’s SWF, currently valued at just over $1 trillion, is said to own at least 2% of every Global Stock.

These funds are spent in many interesting ways. Countries can direct their SWF’s to pay for citizens’ pensions, infrastructure spending, and various one-off budget items. The funds can also directly subsidize government spending projects and provide pensions to the nation’s citizens.

American Style

I believe then benefits of managing a SWF far outweigh the costs of obtaining one, and America needs one badly. I understand there is politics to this decision as well, and many people will be skeptical and unsatisfied. However, there are benefits to both moral sides.

For the Liberal side, the fund will provide the government with an additional sum of cash to advance key agendas, with the benefit of directing foreign investment in countries as a tool for diplomacy. For the Conservative side, it would not take the form of a Federal role, only Federal funding, and best of all, it would be funded voluntarily.

Woah, woah… the fund would be funded voluntarily???

Sounds hard to believe. Yet this Millennial Economist thinks there is a case to be made. There is, after all, a public elections fund that is funded voluntarily. How does that work? Take a look at the IRS Form 1040. You’ve seen this form if you’ve paid taxes before. On the top right corner of that form, there is a box asking you to direct $3 to the public election fund’. This money does not go on top of your taxes. Rather, it gets taken from your tax payment.The $3 donation takes $3 from government revenue to fill the fund. This will automatically reduce the role of government, which is another win for Conservatives.

The donation amount does not need to be big. I propose a donation amount of $1. An amount that small is enough to not be thought about, so the act of donating is an act that can be coached, and not just instinct. And if 500,000 taxpayers donated a year, for 20 years, that money invested in a good fund would generate substantial returns on investment. And over time, the fund will grow, and more money will be available for its spending targets. The number one target I would expect to direct the SWF would be disaster relief. Climate change, with the storms it’s brought and will continue to bring, will be met with all the economic fight we can give.

This is more than just a possibility. Your Millennial Economist thinks it is a no-brainer. Creating a Government Hedge Fund would create brave new tools for international relations, as well as be able to provide incredible amounts of relief to American citizens.

Categories: Economics

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: