‘A U.S. sovereign wealth fund is not a good idea,’ said Romina Boccia, budget policy expert at the Cato Institute.
President Donald Trump’s order to establish a U.S. sovereign wealth fund has raised concerns among economists who are wary of further government expansion into America’s private economy.
Stating that the US government “directly holds $5.7 trillion in assets,” Trump signed an
executive order on Feb. 3 instructing the treasury secretary and commerce secretary to deliver a plan within 90 days for the creation of a sovereign wealth fund to “maximize the stewardship of our national wealth.” Among the potential investments, he said, was an investment in
TikTok, an app for short videos.
The idea of creating a U.S. sovereign wealth fund (SWF) has been floated by both President Trump and
former President Joe Biden. And last year, a
group of senators led by Sens. Bill Cassidy (R-La.) and Angus King (Ind.-Maine) proposed the creation of an SWF, the profits of which they claimed would help fund Social Security benefits.
Treasury Secretary Scott Bessent also spoke in support of the idea, stating that a U.S. sovereign wealth fund would be set up within the next 12 months and that it would “monetize the assets side of the U.S. balance sheet for the American people.”
But many economists say the Trump administration should think twice.
“A U.S. sovereign wealth fund is not a good idea,” Romina Boccia, director of budget and entitlement policy at the Cato Institute, told The Epoch Times. “Unlike countries with successful SWFs—such as Norway or Singapore—the U.S. government runs persistent budget deficits and has no surplus revenue to invest.”
Following the Biden administration’s various attempts to manage the private economy—from solar and wind subsidies to mandates in favor of electric cars—conservatives worry about more government expansion crowding out private investments.
“Even if the fund’s returns exceeded the government’s borrowing costs, this wouldn’t generate new wealth for society,” Boccia said. “It would simply transfer economic activity from the private sector to the government.”
In a Feb. 5
op-ed, economist and American Action Forum President Douglas Holz-Eakin questioned the concept of “national wealth” underlying the plan for a U.S. SWF.
“Last time I checked, private citizens accumulated wealth and the government protected their freedom to use it on behalf of whomever they wished,” Holz-Eakin stated. “Here’s a quick suggestion that will not take 90 days: Drop the whole misbegotten idea.”
SWFs in Surplus Nations
Sovereign wealth funds typically operate in countries that have large fiscal surpluses, often from commodity exports. There are more than 100 of them worldwide, according to the
Sovereign Wealth Fund Institute, managing about
$13 trillion in assets.
The
first sovereign wealth fund, called the Kuwait Investment Authority, was established in 1953 as a way for the country or nation-state to earn a return on surplus oil revenues. This was followed by SWFs in Abu Dhabi, Singapore, and Norway.
Norway currently boasts the world’s largest SWF, the Norwegian Government Pension Fund, also called the “Oil Fund,” which has more than
$1.7 trillion in assets and is estimated to own about 1.5 percent of the world’s listed companies. Two Chinese SWFs, China Investment Corporation and SAFE Investment Company, are the second and third largest, each holding more than $1 trillion.
“The general idea behind establishing a sovereign wealth fund is that it can provide a nation with a long-term financial buffer; that is to say, such a fund can serve to stabilize government revenues by investing surplus funds,” Peter Earle, senior research fellow at the American Institute for Economic Research, told The Epoch Times. “That’s particularly the case with resource-rich economies where fluctuations in commodity prices create fiscal volatility and make the nation’s economic wherewithal more difficult to predict.”
If well managed, he said, SWFs can share the wealth from current surpluses with future generations, while diversifying national income. But at the federal level, America is cash-poor.
The United States is currently running a trade deficit, as well as a fiscal deficit of more than
$700 billion, and has achieved a fiscal surplus only four times in the past 50 years, most recently in 2001. In light of this fact, Trump has suggested that America’s SWF could be funded through tariffs, an approach that has also drawn criticism.
“It would be highly unrealistic for the U.S. to fund a sovereign wealth fund through tax revenue or tariffs, given our colossal national debt and persistent, growing budget deficits,” Earle said. “Unlike Norway or Middle Eastern nations, which built their SWFs from commodity (energy) surpluses, the U.S. would have to divert existing revenue, cut spending elsewhere, or raise taxes, all of which would be politically and economically unpalatable.”
Countries such as Singapore have established SWFs with money from state-owned enterprises, but the United States does not have comparable state-owned companies that are able to capitalize a national investment fund.
Will Government Politicize Investments?
Critics also question whether the government is best suited to the role of asset manager and say there is also the risk of investment decisions becoming politicized.“Bureaucrats lack the dispersed market information that private investors use to efficiently allocate capital,” Earle said. “Moreover, an SWF can become a tool for inside dealing and corruption, as politically connected individuals may use it to direct investments toward favored firms or industries.”
Examples of politicization of public funds include state pension funds such as CalPRS and CalSTRS in California and New York state and city pension funds that explicitly include environmental and social goals when investing other people’s retirement money.
“Political considerations often override sound financial management, and a U.S. sovereign wealth fund would almost certainly become politicized,” Boccia said. “Imagine the federal government becoming the largest shareholder in American companies—this would invite even more lobbying, rent-seeking, and government interference in corporate governance.”
