President Trump issued an executive order planning the establishment of a US sovereign wealth fund. A sovereign wealth fund (SWF) is a state-owned investment fund that manages public assets, typically financed from surplus or natural resource revenues, to generate long-term financial returns for state aims. Think Saudi Arabia’s Public Investment Fund or Norway’s Government Pension Global Fund.
Not only are the potential funding options dubious, but a federal investment fund would also be economically counterproductive and an invitation for political malfeasance.
To put it mildly, the United States isn’t Saudi Arabia or Norway. Some states have such funds, but like Norway, they’re financed through natural resource proceeds like the Alaska Permanent Fund Corporation. On the other hand, the United States is heavily in debt and on an unsustainable fiscal trajectory. There are no budget surpluses to fund one, as the US federal government is set to run a nearly $2 trillion deficit this year. Indeed, “extraordinary measures” are currently being employed to prevent a default on $36 trillion in federal debt.
Trump has mentioned using tariff revenues to finance an SWF on the campaign trail. But he’s also suggested that tariffs could replace the income tax (a “dangerously foolish” idea). Trump has even suggested higher import taxes could help lower the price of groceries (a “deranged” idea). Only in a fantasyland can tariffs be the solution to everything. And even if tariffs could adequately finance an SWF, it would be a marriage of two undesirables.
Perhaps trying to be the adult in the room, Treasury Secretary Scott Bessent suggested monetizing federal assets. Sure, downsize the federal government, sell off federal lands and buildings, etc. However, any proceeds should be used for deficit reduction and making the tax code friendlier for private investment.
Others have suggested that an SWF could be financed with debt if the fund generates stock market returns exceeding the government’s borrowing rate. But as Romina Boccia points out, rather than generating wealth for the country, “it would simply transfer economic activity from the private sector to the government.” Borrowing money to buy stocks from Americans would require future taxpayers to repay the debt, while the investment returns would go to the government instead.
Trump has floated the federal government taking a 50 percent ownership stake in TikTok and possibly putting it in the SWF. That would be a “soft” nationalization of a social media company, opening Pandora’s box to large government stakes in other companies. For example, Trump supports the Biden administration’s foolish efforts to block Nippon Steel from purchasing US Steel. As US Steel circles the drain, it’s not inconceivable Trump sees an opportunity to “make a deal.” Going further down this road would, as Tyler Cowen says, “essentially bring the US a kind of socialism, with extensive government ownership of the economy.”
Speaking of the Biden administration, it was reportedly exploring an SWF last year. That alone should give Trump’s backers pause. Republicans who go along with Trump’s plan should understand that it will eventually become a vehicle for future Democratic administrations to support the “green” and “woke” policies that the Department of Government Efficiency, or DOGE, initiative is currently trying to root out.
What about “draining the swamp”? It’s hard to imagine anything swampier than establishing a federal investment fund. The susceptibility to political interference, cronyism, and outright corruption is undeniable. In an extreme example, Malaysia’s sovereign wealth fund became embroiled in a massive corruption scandal. Officials were accused of misappropriating $4.5 billion, leading to a 12-year prison sentence for the country’s prime minister.
Beltway lawyers and lobbyists are probably smiling like a butcher’s dog at the prospect of it.
Wanting to have a big toy because other countries have a big toy is not a sound basis for policymaking. The United States is already one of the wealthiest in the world despite the federal government’s best (worst?) efforts. Dominic Pino sums it up perfectly: “The federal government is a poor steward of the chunk of it that it already controls. It should control less, not more. US wealth is best off in private hands.”