TGIF: Say No to a Sovereign Wealth Fund

Donald Trump wants to create a sovereign wealth fund (SWF). It's a bad idea if your standard is freedom, free enterprise, and free markets. That's not Trump's standard, but we already knew that.

A sovereign wealth fund is a government-run investment program. Where does the money come from? In the private sector, people save money (defer consumption) and let entrepreneurs and capital owners (perhaps including themselves) use it to produce goods and services that serve consumers sooner or later. They do so because they anticipate a worthwhile future return (interest, dividends, capital gains) that will enable them to consume more than they could have otherwise.

What about the government? Governments with SWFs typically used budget surpluses to get them going. We might ask why those governments didn't cut taxes and spending instead. After all, the government had taken in more money than it required to cover its spending. If you look at this from the politicians' and bureaucrats' point of view, the answer is obvious. They like using other people's coerced money for social engineering.

As for the U.S. government, it has not had a budget surplus in ages. It doesn't have money sitting around with nothing to do. Its formal debt is larger than the GDP, and its unfunded future liabilities from the entitlement programs are humongous. It faces daunting annual budget deficits way into the future, with interest on the debt a rising budget item. Is Trump proposing to borrow money to stock the SWF?

To put it mildly, it's a bad time to set up a SWF, which is not to say there is a good time. Instead, it's the right time to massively cut spending, shrink the government, let the taxpayers spend their money as they prefer, and retire the debt. (A good case can be made for repudiating the debt. People who chose to lend money to the government relied on its power to tax, that is, to aggress. They voluntarily took a risk. With no debt to repay, the government would have less of an excuse to tax us. That would be a boon. I don't expect Trump to repudiate the debt, well not directly, though monetary inflation would bring a partial and implicit repudiation since it would be repaid in dollars that buy less than when the money was borrowed. This has happened before.)

"The idea that Washington should set up an investment fund when it can’t even manage its own budget is laughable at best and dangerous at worst," writes  the Cato Institue's Romina Bocci in "The Fool’s Gold of a US Sovereign Wealth Fund."

Some people say that the government could finance a SWF by selling assets such as land, raw materials, and buildings. But that answer raises other issues. If the government sells off assets, it could do other things with the money: namely, pay off debt or cut taxes and spending. One might also ask if selling assets is appropriate. Shouldn't government land be opened to homesteading as it should have been long ago?

Any dollars the government invests, however it procures them, could have been invested by private individuals. For example, when the government pays off a Treasury bill, the holder has cash to invest privately. As everyone should realize, the government ultimately obtains money and resources only by taking it from producers. The government is a transfer machine.

Here's another question: do we want the government to be a player in the capital markets? Emphatically not! That's why Cato's Romina Boccia describes an SWF as not just laughable but dangerous. "[W]hy should the government be in the business of managing investment portfolios when private capital markets already allocate resources far more efficiently?"

Any presidential administration will bring its political agenda to its investment program. A Harris administration would have "invested" in so-called green enterprises. (This has been a fiasco in the past. See the Solyndra case.) Trump's program would undoubtedly embody his belligerent nationalist, industrial-policy program. We can only shudder.

More generally, a government fund administrator would be different from a private investor. Anyone who has read Ludwig von Mises's, classic Bureaucracy will know that. Apart from the president's political agenda, a bureaucrat would only be playing entrepreneur. Since he would not be risking his own capital and would not personally profit or lose from his decisions, he would face different incentives from his private counterpart, who would face bankruptcy. Mises and F. A. Hayek also made this point when they refuted the socialist economists who argued that government planners could mimic the market.

As Boccia writes, an SWF "would invite political interference in capital markets, opening the door to cronyism, favoritism and inefficiency. Given Washington’s track record, does anyone believe that a government-run investment fund would be free from political meddling?" Her example of such political meddling is the U.S. International Development Finance Corporation. Peter C. Earle of the American Institute for Economic Research gives another example in "Scrapped Ventilators and Sovereign Wealth: Why Central Planners Shouldn’t Invest."

Back to the drawing board, Mr. Trump.

TGIF: A New Washington Post?

If Jeff Bezos is as good as his word, the advocates of full liberty will owe him a standing ovation. As everyone knows by now, Amazon.com founder Bezos, one of the greatest entrepreneurs of all time—a man whose profit-making activities have benefitted mankind worldwide—has announced that the editorial page of his newspaper, the Washington Post, will be devoted to promoting the free market and personal liberty. Before Bezos bought the Post in 2013, it was a leading champion of government intervention throughout the economy, which means throughout our lives. If he consistently follows through, this will be quite a change.

As he put it in a memo to the staff, which was posted on X:

We are going to be writing every day in support and defense of two pillars: personal liberties and free markets. We’ll cover other topics too of course, but viewpoints opposing those pillars will be left to be published by others.

I'll get one of my pet peeves out of the way. Bezos's two pillars are one: individual liberty. Nothing is more personal than how we make and spend our money. My decision to earn my living as a plumber is a personal decision. When the government forbids me to do that without a license, that violates my personal liberty. An individual is an integrated whole.

Bezos continued:

There was a time when a newspaper, especially one that was a local monopoly, might have seen it as a service to bring to the reader’s doorstep every morning a broad-based opinion section that sought to cover all views. Today, the internet does that job.

He's got a point. Some people will be bothered that Bezos says "viewpoints opposing those pillars will be left to be published by others." That sounds like he won't let his op-ed editor publish regular or guest columnists who oppose freedom and free markets. (No columnist has resigned to my knowledge.) It's not just the unsigned editorials that will take up the cause. Isn't that narrow and intolerant? Bezos reasonably points out that through the internet, the full range of views is at everyone's fingertips. So why is every newspaper obliged to present a smorgasbord of opinion?

His next paragraph is excellent:

I am of America and for America, and proud to be so. Our country did not get here by being typical. And a big part of America’s success has been freedom in the economic realm and everywhere else. Freedom is ethical—it minimizes coercion—and practical—it drives creativity, invention, and prosperity.

How often do you hear it said that ethical ideals, particularly freedom, are practical? Not very. Libertarians have been saying that for a long time, but it hasn't sunk in. Many people believe that freedom is impractical and that the government must routinely override it to maintain order or other values. That's balderdash, but many people have been taken in by the self-serving line.

Bezos wrapped up:

I’m confident that free markets and personal liberties are right for America. I also believe these viewpoints are underserved in the current market of ideas and news opinion. I’m excited for us together to fill that void.

A couple of points: Bezos is accused of sucking up to Trump. But freedom and free enterprise—which means, among other things, unobstructed global trade and the free movement of people—are not pillars of Trumpism. Trumpism is the rule of Trump's autonomous whims, which may face few checks from other power centers. The ability of producers and consumers to plan long-term is at the mercy of his mood. (He might give company X an exemption from a tariff, but he might not.) It's what historian Robert Higgs calls "regime uncertainty," a highly destructive thing. It's not the free market. It's the opposite! We'll have to watch the Post's editorial page closely, but this announcement would be a funny way to win over the MAGA crowd.

I'm left wondering what the page will say about foreign policy. Contrary to popular impression, an interventionist foreign policy must violate freedom and free enterprise. How could it not? If Bezos's Post opposes Trumpian interventions in Ukraine and the Middle East, that will be significant. Full disengagement from those conflicts is imperative in the name of liberty. Trump's plan to build up the military is wrongheaded. As classical liberals (libertarians) have long understood, the warfare state is inimical to liberty.

Abolish Draft Registration, Mr. Trump

During Friday's famous White House meeting, VP Vance criticized Ukrainian President Zelensky for his government's abduction of men from the streets to fight against Russia. Good for Vance. Conscription is one of the worst things a government can do, especially during a war. As a form of slavery, it goes against every libertarian, or classical liberal, principle. It's indecent.

Presumably, President Trump shares Vance's horror. So this is a good time to abolish draft registration here. The penalty for not registering is a maximum five years in prison and a maximum fine of $250,000. President Carter should never have imposed it, and presidents from Reagan onward should have scrapped it. Shame on them for not doing so.

Well, Mr. Trump?

Let's Not "Run after a Share in the Trouble"

Of course “principles,” phrases, and catch-words are always invented to bolster up any policy which anybody wants to recommend. So in this case. The people who have led us on to shut ourselves in, and who now want us to break out, warn us against the terrors of “isolation.” Our ancestors all came here to isolate themselves from the social burdens and inherited errors of the old world. When the others are all over ears in trouble, who would not be isolated in freedom from care? When the others are crushed under the burden of militarism, who would not be isolated in peace and industry? When the others are all struggling under debt and taxes, who would not be isolated in the enjoyment of his own earnings for the benefit of his own family? When the rest are all in a quiver of anxiety, lest at a day's notice they may be involved in a social cataclysm, who would not be isolated out of reach of the disaster? What we are doing is that we are abandoning this blessed isolation to run after a share in the trouble.

—William Graham Sumner, "The Conquest of the United States by Spain" (1898)