My most frequently requested topic has been to weigh in on Matt Bruenig’s case for the establishment of an American sovereign wealth fund (he calls it a “social” wealth fund), and I have to say I really don’t get it. Dalton Conley offered a version of this idea back in a 2009 Democracy article that I think is worth reading alongside Bruenig’s, just to get a sense of how the same proposal can be given a different ideological spin.
But when I look around the world for successful examples of SWFs, here’s what I see:
A lot of countries (but especially Norway, if you’re approaching things from a leftist perspective) use SWFs because they want to convert fossil fuel wealth into a diversified pool of assets. That’s a very sensible approach. If I happened to find a bunch of diamonds in my backyard, I would sell them and buy a diversified portfolio of financial assets rather than hoarding a big stash of diamonds in a safe in my basement. The fossil fuel SWF operates on the same principle.
Then there’s the Singapore SWF, which is essentially funded by garnishing a slice of Singaporean workers’ wages in order to raise the national savings rate.
Last but not least, in his book Prosperity for All, monetary economist Roger Farmer proposes that the Fed buy stocks as well as bonds as part of its macroeconomic stabilization mission. That’s a little bit of a far-out idea, but it’s reasonably common for small countries (Switzerland, for example) to do central bank purchases of foreign currency as a macroeconomic stabilization tool. And in a practical sense, the fossil fuel SWFs also operate in part as a tool for managing the exchange rate. Bruenig mentions countercyclical asset purchases as one potential funding mechanism for the SWF, so in a sense, macroeconomic stabilization is the idea that links all these other ideas together.
But the specific focus of Bruenig’s proposal is that an SWF could be a key tool for fighting inequality by ensuring that everyone shares in the wealth created by stock market booms, instead of the present situation, where stock ownership (and wealth in general) is extremely concentrated.
To me, this feels like flying to Idaho to find some potatoes when you could just go to the supermarket. If you want to redistribute stock market wealth, the parsimonious way to do it is through taxes. We already collect dividend and capital gains taxes, and we could raise the rates or create new super-elite brackets with higher rates or do whatever else we want. We could also try to tax unrealized capital gains by shifting the tax to an accrual basis. Thomas Piketty has proposed the imposition of a small progressive tax on net wealth that would accomplish something similar.
There are a lot of ins and outs to tax policy, obviously, but broadly speaking, the idea would be that you collect the taxes and then you spend the money. No need to invent a middle step where the money is invested in the stock market.
Politically, I think this idea has gotten resonance because even though Bernie Sanders’s ideas are pretty standard welfare state liberalism, he, for odd historical reasons, calls himself a “socialist.” Sanders ran in the 2016 primary against Hillary Clinton, whom many people didn’t like for various reasons, so “socialism” became a cool trend. The SWF idea takes boring welfare state liberalism (tax the rich to pay for programs) and transmogrifies it into something that seems more socialist.
And one question about this is which way the leakage ends up going. Is the SWF a way to put welfare state liberals on the slippery slope to collective ownership of the means of production? Or is it a way for people with hazy but heartfelt anti-capitalist convictions to be converted to banal welfare state liberalism?
In substantive terms, though, the most interesting question is whether Farmer is right. If you look at the Great Recession, the Fed’s inability or unwillingness to cut short-term interest rates below zero, and the massive human suffering induced by dragging out the recovery over a painful stretch of six or more years, it’s clear that it would be desirable to give the Federal Reserve a more robust toolkit for fighting recessions. Farmer’s idea of printing money to buy stocks isn’t one that I’ve seen many people embrace. But it has a certain logic to it.
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