President Biden and Former President Trump Agree on Creating a Sovereign Wealth Fund

President Joe Biden and former President Donald Trump may have many disagreements on how to run the economy, but they have found common ground on one idea: the creation of a sovereign wealth fund. Both Biden’s economic advisors and Trump have proposed the establishment of such a fund, which would place the United States alongside countries like Norway, Canada, and China that hold a portion of their national wealth in income-generating assets.

Understanding Sovereign Wealth Funds

A sovereign wealth fund is a state-owned investment fund. For example, Norway’s $1.7 trillion sovereign wealth fund invests the revenues from the country’s oil and gas industry in financial markets, including stock in foreign companies. It also uses some of the investment income to fund about a fifth of the government’s budget. Other resource-rich countries like Kuwait and the United Arab Emirates have similar funds. China also has a sovereign wealth fund that it invests in markets outside the country.

If the United States were to establish a sovereign wealth fund at the national level, it would be a first. Currently, Alaska’s permanent fund serves as an example of a state-level fund. The fund takes the royalties the state collects from oil drilling and mining, invests them, and returns a dividend to taxpayers.

The Purpose of a U.S. Sovereign Wealth Fund

Advocates of creating a permanent fund at the national level have proposed various uses for the income generated by such a fund. It could be used to address inequality, fund the Social Security program, or invest in “great national endeavors,” as Trump suggested.

However, some economists are skeptical about whether a sovereign wealth fund makes sense for the United States. While these funds benefit economies heavily dependent on resource extraction, the U.S. has one of the largest and most diverse economies globally and does not face the same vulnerability. Additionally, there is the issue of funding the fund itself, considering the U.S. government currently operates with a budget deficit rather than a surplus.

Douglas Holtz-Eakin, an economist and president of the right-leaning American Action Forum think tank, expressed his doubts in a recent blog post, stating that the only way to acquire a sovereign wealth fund would be through levying taxes, not spending the money, and building the fund. However, the federal government currently levies taxes but spends more money than it collects, resulting in accumulated debt.

Despite these concerns, sovereign wealth funds have gained popularity in recent years. As of 2022, there were 176 such funds worldwide, with over $11 trillion invested. This number has significantly increased from just over $1 trillion two decades ago, according to a study by the National Institutes of Health. It is possible that the United States may join this trend and establish its own sovereign wealth fund.

During a speech to the National Economic Club of New York, Trump highlighted the presence of wealth funds in other countries and emphasized the need for the United States to have one as well.

Conclusion

While President Biden and former President Trump have differing views on many economic matters, they both agree on the potential benefits of creating a sovereign wealth fund in the United States. However, the feasibility and necessity of such a fund for the U.S. economy remain subjects of debate. As the discussion continues, the U.S. may ultimately decide to follow in the footsteps of other countries and establish its own sovereign wealth fund.