In a striking passage of her recent memoir What Happened?, Hillary Clinton revealed that during the 2016 presidential race, she considered a plan to give every American cash by starting a massive government-run investment fund.
“Once you capitalize the fund, you can provide every American with a modest basic income every year,” she wrote. “Besides cash in people’s pockets, it would also be a way of making every American feel more connected to our country and to one another — part of something bigger than ourselves.”
Ultimately, she rejected the idea when she ran the numbers on it. Her inspiration was the success of the Alaska Permanent Fund, which provides this kind of service for the state’s relatively small population. Its money comes from revenue derived from the state’s relatively large fossil fuel extraction industry.
She would have financed a national-scale fund with things like “shared national resources includ[ing] oil and gas extracted from public lands and the public airwaves used by broadcasters and mobile phone companies,” and perhaps “things like a financial transactions tax” or even a carbon tax.
But even these ambitious revenue streams wouldn’t generate a meaningful dividend to America’s large population, so she left it aside.
In the memoir, it serves as an example of the kind of responsible choices Clinton made as a candidate. She was unwilling to make promises to voters that she couldn’t pay for, a value that led to increasing resentment inside the ranks as the Bernie Sanders campaign announced more and more expensive new programs without clear plans to pay for them.
Now, as the Bernie-inspired wing of the Democratic Party continues to rise, a community of wonks is emerging to bring rigor to the new ideas of the left. Matt Bruenig, the founder of the People’s Policy Project and a leading voice in the effort, is out with a proposal Tuesday that would have the country take the other fork in the road. Rather than give up on the grounds that natural resource taxes are inadequate to do the job, Bruenig wants to use steep taxation, existing capital income, and some unorthodox financial moves to make it work.
The idea has some well-founded inspirations from Alaska to Norway to many state public employee pension funds. But the scale of what he has in mind is unprecedented, and gives us the clearest look at what it might really mean for democratic socialism to come to America.
Meet the American Solidarity Fund
Bruenig’s plan is to create what he calls the American Solidarity Fund, a government-owned company that would be overseen by a board (and an independent auditor) appointed by the Treasury Department that would be charged with hiring a CEO and other permanent staff. The fund would receive regular injections of cash from the government, as specified by law, and make regular dividend payouts to its shareholders — all American adults — based on a five-year rolling average of the fund’s investment performance.
This is broadly similar to how most states manage the pension plans for their public employees, though under Bruenig’s plan, all citizens would get payouts, not just public employees. And, importantly, payouts would be based on actual investment return, rather than the situation with state pension funds where specific sums are promised and then it’s left up to the fates to see whether the fund’s investments actually raise the amount of money that’s needed.
Bruenig and his collaborators even mocked up a logo for the Solidarity Fund and concept designs for an app.
The idea, which is pretty explicitly political rather than substantive in nature, is to conceptualize each citizen as a “shareholder” in the fund — issued a single share upon her 18th birthday. The share cannot be sold, given away, or inherited but serves to symbolize the idea that the dividend payouts represent something to which all Americans are entitled as equal custodians of the nation’s wealth rather than just welfare.
Bruenig envisions the fund as, like Norway’s pension fund or CalPERS in California, as operationally independent of politics on a day-to-day basis but also serving as an activist investor operating under broad guidelines provided by Congress and the Treasury Department. Depending on the shifting winds of politics, the fund might be directed to vote against exorbitant CEO pay packages or against corporate gun control efforts that have raised the ire of conservatives.
Initially, the fund would be modest in size and limited in its effects as an activity. But over time, to pay an Alaska-esque dividend on the much larger scale of the entire United States would entail the creation of a massive fund that would almost certainly end up being the biggest fish in the investment ocean — giving the US government, for better or worse, substantial sway over private sector economic activity even as the basic mechanisms of market allocation remain in place.
But, of course, you’d have to get the money.
Taxes, taxes everywhere
In their 2015 book The Public Wealth of Nations, Dag Detter and Stefan Fölster argue that despite the Reagan/Thatcher revolutions and the perceived political domination of neoliberalism over the past generation or two, Western governments continue to own enormously valuable financial assets in the form of land, infrastructure, and other buildings.
Indeed, Thomas Piketty calculates that despite the heavy attention given to the US national debt, the value of public sector assets in the United States exceeds the value of public debts by a substantial margin.
Detter and Fölster make the case that this wealth is mostly structured in a way that leaves it untapped or unrealized, largely because it’s not treated as wealth at all, and should be brought under more professionalized management. Bruenig sees this as a potential initial step for capitalizing the Solidarity Fund, which could be given ownership over federal assets, at which point “the fund could generate investment income from them by renting them out or, where appropriate, selling them and using the revenues from the sales to buy other more promising assets, such as stocks and bonds.”
But whatever the merits of this idea as a means of better managing public assets, even on a very optimistic read, it would only generate a dividend worth a few hundred dollars a year — far short of the Alaska model. For that, you need a much larger pool of money, which brings us to good old-fashioned taxes.
Bruenig wants to see a social wealth fund financed with an array of new taxes on private wealth, including a one-off starter tax on market capitalization, an IPO tax (matched by an equivalent tax on private companies that are acquired by public ones), a financial transactions tax, a mergers and acquisitions tax, a tax on investment fund management, and the idea that “inheritance and gift taxes should be massively increased with their revenues going into the ASF as a collective inheritance for everyone, not just the children of the affluent.”
Last but by no means least, he calls for $515 billion a year to be raised by eliminating existing tax breaks for private savings — including tax-preferred savings accounts like 401(k)s and IRAs, the preferential tax rate for capital gains and dividend income, and the tax-free status of capital gains accrued from sales of owner-occupied housing.
All of this tax raising is, needless to say, somewhat politically far-fetched and would be opposed on the merits by people who believe that steep taxes on investment income deter business formation, business investment, and, ultimately, job creation and broad prosperity. But even if you do accept that some or all of these proposed tax hikes are politically or substantively viable, it’s natural to wonder why you would dedicate the revenue to the particulars of the social wealth fund scheme rather than giving it to the needy or using it to directly finance useful programs.
The other two closely related financing ideas, by contrast, are both more exotic and more intimately tied to the specific context of funding a social wealth fund.
The power of sovereignty
The US government, in virtue of its status as a stable and wealthy democracy that prints dollars, has the ability to borrow money at significantly lower rates than the private sector. This low cost of funds means that the across most time horizons, it’s profitable for the federal government to borrow money and buy average-performing stocks. What’s more, a well-run Solidarity Fund would have an extremely long time horizon across which to evaluate its investments (in principle, the government is immortal), which should allow it to take full advantage of this opportunity.
There are limits to how aggressively this could be pursued since large-scale borrowing would raise interest rates and large-scale share purchases would reduce forward-looking stock returns.
But as Bruenig observes, a moderately competent fund could time its purchases for economic downturns when both interest rates and share prices are abnormally low. That would maximize profits for the Solidarity Fund and have the convenient side effect of helping to stimulate the economy when it’s depressed.
The final idea his paper advocates for is to simply have the federal reserve print money and buy shares of stock. That sounds a little bit outlandish, but in fact, the Bank of Japan has been doing it for the past few years. Indeed, mechanically speaking it’s no different from what the Fed did in its quantitative easing programs when it purchased long-dated debt. In his 2016 book Prosperity for All: How to Prevent Financial Crises, UCLA economist Roger E.A. Farmer touts countercyclical money-financed stock purchases as the optimal means of spurring growth when the economy during periods of recession or financial panic.
Most of our tools for recovering from recessions help stock markets and other financial markets first. But wages and unemployment often don’t recover as fast as the stock market. By giving every American a stake in the stock market, those early stock gains will wind up helping everyone.
But, of course, the idea of large-scale government ownership of financial capital has implications far beyond the federal budget.
The drive for equality
Bruenig’s main argument for a wealth fund is straightforward — if you care about economic inequality, you have to care about inequality of wealth, which is even more unevenly distributed than income. NYU economist Edward Wolff calculates that as of 2013 (the year for which the most recent data is available), 1 percent of the population owns 38 percent of the stock market and the richest 10 percent owns 80 percent of the stock wealth. Half the population, meanwhile, owns no stock at all.
And because possessing wealth tends to give a person extra income and because people with higher incomes tend to save more and thus accumulate wealth, there’s the possibility that unfettered private wealth accumulation will lead to accelerating inequality.
A social wealth fund pushes directly against those trends. Meanwhile, the dividend payments would serve as a form of universal basic income — with cash delivered to all but particularly useful to lower-income individuals and potentially doing a great deal to fight poverty. The particular experience of Alaska, which uses its fund capitalized with fossil fuel wealth to provide a universal annual payout, suggests that this kind of structure is quite popular and politically stable in contrast to stigmatized “welfare” payments to the non-working poor.
But if getting the government’s hands on some money were the only object, the wealth fund structure would be unnecessary.
Conversely, over the years, many scholars have for one reason or other found themselves proposing that the US government become a stock owner without embracing the full measure of Bruenig’s concept. The Center for Economic Policy Research’s Dean Baker has long advocated replacing complicated and easy-to-dodge corporate income taxes with the idea of just making companies issue stock to the federal government.
Alicia Munnell touts investing the Social Security Trust Fund in stocks as a useful tactic for shoring up the program’s solvency.
And as noted above, some monetary economists (including the ones currently running the Bank of Japan) believe government stock purchases can help fight deflation and stabilize the economy.
But these proposals invariably conceptualize the government as a silent partner in the enterprises it would partially own, trying to find a way for the government to reap the fiscal or economic benefits of government stock ownership without the socialistic implications of government officials running private firms.
Bruenig’s proposal is the opposite of that, a way to put real meat on the bones of “democratic socialism” at a time when the phrase is gaining momentum as a slogan and an organizing project but also, to an extent, lacks clear definition.
This could be what democratic socialism looks like
Bernie Sanders started referring to himself as a democratic socialist rather than a liberal for reasons that are fundamentally rooted in Cold War foreign policy controversies and the intricacies of Vermont politics in the 1980s. His 2016 presidential campaign sparked increased interest in socialism and helped spur a surge in membership in the Democratic Socialists of America (a group he’s not a member of), and DSA’s support for Alexandria Ocasio-Cortez’s upset primary victory against Rep. Joe Crowley (D-NY) kicked the movement’s visibility into even higher gear.
But the main policies associated with politicians like Sanders and Ocasio-Cortez — Medicare-for-all, free college, etc. — are endorsed by large numbers of non-socialist Democrats and are clearly continuous with the main ideas of the Great Society, the New Deal, and welfare-state liberalism.
A giant social wealth fund that would not only finance a universal basic income but actively vote its shares is a potential game changer for the global economy. Norway’s wealth fund is thought to own around 1 percent of the total value of publicly traded stocks worldwide. America’s economy is about 50 times larger, meaning even a much more modestly funded American Solidarity Fund would be a huge whale in the investment sea, potentially exerting vast influence over the conduct of private businesses.
Bruenig swiftly passes by the standard objections to this, arguing that “it is fair to worry that the government might make bad shareholder votes from time to time, but not reasonable to think that very affluent people will on average make better shareholder votes than a democratically-elected government.”
He does, however, allow that as the fund becomes very large over time, it might be desirable to let individual citizens vote their shares differently rather than having the fund vote as a single unitary bloc. Either way, however, the existence of the fund would fundamentally overturn the core logic of capitalism, in which the decisions about the shape of the economy are made by a small minority wealthy investors rather than the broad population. That’s something that proposals for a more generous welfare state, no matter how expansive, can’t offer.
In part for that reason and in part simply because it involves a number of concepts that are unfamiliar to even more politically engaged Americans, it seems relatively unlikely to be a short-term hit with ambitious Democratic Party politicians. But by knitting together potential solutions to a number of deep economic quandaries — how to fight recessions, how to curb wealth inequality, how to hedge against technological disruption — it’s the kind of idea that could ultimately prove transformative over the longer term.