Proposals for a federally based sovereign wealth fund (SWF) have emerged almost simultaneously, though separately from the Biden White House and the Trump campaign. Such pools of money usually invest dedicated revenue streams for the public’s benefit. They have been around for years, mostly in oil-producing nations, to offer income after that time when the oil runs out. Those of Saudi Arabia and Norway are prominent. Some twenty-three states also have such funds, Alaska’s $78 billion Alaska Permanent Fund prominent among them, again associated with oil wealth. Globally, SWFs control some $12.4 trillion in investable funds. However, for all the good that such funds do and will do elsewhere, a federal SWF in the United States would be a mistake. 

The most immediate problem would emerge with how the monies are held. If, as is the case of other SWFs, the money goes into stocks, bonds, and other business interests, a Washington-based fund would soon become a major shareholder and bondholder in American corporations. This is not a problem for other SWFs. National funds, like those of Norway and Saudi Arabia, buy into largely foreign companies. However, because U.S. stocks and bonds constitute over half of what is available globally, a federal fund would do a lot of buying at home. The government then would come to own the economy’s means of production. The socialist overtones of such a result are certainly enough to give a great number of citizens pause. Even aside from this risk, a large government ownership stake could almost certainly influence management priorities and inevitably pull those priorities away from maximizing profits by pleasing the buying public and toward the service of political objectives. 

Such a twist in priorities would cause additional problems by discomforting private shareholders. Should they then lose interest in corporate shareholding and bondholding, corporations would ultimately lose access to a source of financial capital and accordingly face limits on their ability to modernize, expand, hire, and meet consumer demands. Even if the government were especially careful not to interfere with company management decisions, such a fund would inevitably siphon investable funds from the economy and thereby limit the monies available to private investors. 

Such a fund would indirectly threaten this country’s innovative abilities. America’s innovative edge stems in large part from the great diversity of effort among the country’s entrepreneurs. Because no one can see the future—not even the best-educated and best-informed Washington bureaucrats—innovation is something of a guessing game about what will work best in the unknowable years to come, what the great economist John Maynard Keynes described rather poetically as “the dark forces of time and ignorance.” 

Some guesses, of course, are better informed than others. Still, because all must cope with uncertainty, a lot of different guesses raise the odds that somewhere, one of these many efforts will hit on a future need. A SWF would, by nature, limit the number of guesses by concentrating on just a few areas favored by its government managers. Consequently, the odds of effective innovations would fall.

Most unsettling are the potential political pitfalls. The income flowing from the fund’s investments would give the executive branch of government an ever-larger revenue source that is entirely independent of a vote in Congress. No doubt either Trump or Harris would delight in financial resources beyond those appropriated by Congress. But the nation would then live with an administrative power independent of control or even review by the people’s elected representatives. Such a lack of review invites abuse. It is also antithetical to the Constitution’s intent, if not its letter. Consider that historically the strength of representative bodies stemmed entirely from the need of kings and princes to ask them for tax raises.

No doubt, each of these proposals has roots in the goodwill of either Biden or Trump. The nation needs to know the kinds of investments each wants to promote. But before rushing in the direction of what, on the surface, must sound very appealing, Americans and their leaders should look at all sides of the SWF proposal, including those that fall far short of appealing. 

Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live and Bite-Sized Investing.

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