NPR. This is The Indicator from Planet Money, I'm Waylon Wong.
And I'm Patty Hirsch.
There's a point in a recent episode of the HBO TV series Industry, where a certain type of financial instrument makes a surprise cameo.
Picture a bank boardroom at 4am in London, filled with sweaty people and shirtsleeves.
Surely, there are a number of sovereign wealth funds that I'd like to grow their stake in Pierpoint.
Alright, no spoilers here, especially if you haven't seen the season finale yet, but sovereign wealth funds are having a bit of a moment right now.
You can never accuse them of living in the shadows exactly, but recently both members of the Biden administration and the Trump campaign have been heard floating the idea of an American sovereign wealth fund.
Yeah, and this is an idea that has, for the most part, attracted snorts of derision from political scientists and economists.
But before we leap to judgment, let's do a little due diligence.
Due diligence is my love language, Patty.
I know it is. On today's show, we'll learn what a sovereign wealth fund is and how these funds came about, and then we'll hear a bit more about whether a US national sovereign wealth fund is a good or even viable idea.
That's coming up after the break.
I promised you an explanation of what a sovereign wealth fund is, and for that, we're going to hear from Tyler Cowan.
He's a professor of economics at George Mason University and a long time friend of the indicator.
A sovereign wealth fund arises when a government has some excess money and it takes that money and it invests it.
And the idea is to earn a highly positive rate of return on that money so the country's wealthier and citizens can pay lower taxes.
Sovereign wealth funds really took off in the late 90s, but they're not a new invention.
They've been around for a long time.
In fact, the very first sovereign wealth funds were created back in the 1800s, right here in the United States.
Yeah, and there are as many as 15 sovereign wealth funds in the US still operating today at the state level.
Marisa Perez Diaz is vice chair of one of the biggest, the Texas Permanent School Fund.
The fund was created in 1854 to generate revenue to fund Texas public schools.
Marisa says the money that goes into the 56 .8 billion dollar fund comes from management of certain state lands.
The Texas Constitution identified certain lands across the state and all of the proceeds from the sale or the lease of those lands would be the funding mechanism for the Permanent School Fund.
That included the leasing of surface and mineral rights, and in particular oil and natural gas royalties.
Around the world, the same thing happens at the national level.
Countries direct surpluses from oil production or exports into funds and use the returns to do anything from lowering taxes to building roads and airports.
That all sounds really good, right?
Yeah. So why don't we do that on a national level here?
The biggest problem was we don't have a surplus.
Ow. Small problem. Tyler Cowan notes that the US hasn't had a surplus since 2001.
That means for the last 23 years, we've been spending more on our annual budget than we've been making.
Instead, we've been racking up a stupendous amount of debt.
And Tyler says that makes the idea of a sovereign wealth fund for the United States, well, absurd.
If your country's small, well -governed and has a surplus, it is probably a good idea.
We are not any of those.
If we were playing overrated, underrated with Tyler, I'd say this means he thinks the idea of a sovereign wealth fund for the US is highly overrated.
I'd say you're right.
And most economists seem to agree, but not all.
And not James Brawle.
He's a senior fellow at the Competitive Enterprise Institute.
It's a conservative think tank.
He's also a graduate of George Mason's economic program where Tyler Cowan teaches.
He was my adviser, actually.
He was. Yeah. So we don't see eye to eye on this issue.
Yeah. Unlike Tyler, James thinks the idea of a sovereign wealth fund for the United States is underrated.
He acknowledges that we're not running a surplus right now, but then neither is the UK or Germany or Mexico, and they all have wealth funds.
James says there are various other ways for the US to generate the money to use in a fund.
We could channel some of the investment dollars that flow into the country from foreign investors, he says.
We could sell special bonds, not a popular idea with Tyler, by the way.
No. Or we could manage some of our national assets better, kind of like Texas does with its land.
The federal government owns a lot of land.
It owns a lot of assets of various kinds.
We had a more specific focus on just managing those existing resources more prudently.
I think we could make trillions in revenue.
Yeah. He says some federal land could be developed.
I think that would be kind of a spicy idea, especially out West.
Yes, indeed. But the proceeds from investing, he says, could be used for a variety of things to pay down debt, to pay a dividend to citizens, to build infrastructure.
But whatever a sovereign wealth fund did with that money, James says, it would do it a lot more efficiently and cost effectively than the system we currently have, which is called the Congress.
Congress is not always very efficient in the way that it allocates funds and the political dynamics in Congress lead to a lot of special interests pandering for dollars and setting up programs that maybe don't pay off over the long haul.
You can see the attraction here, right?
Our system can be torturous, infuriating even.
Tyler Cowan says no wonder the idea of a fund that would spend independently of Congress has gotten some traction, both in the Biden administration and the Trump campaign.
Our governments have decided they want to do extra things, things like industrial policy, but they're frustrated with the notion of having to go through Congress and get approval for expenditures, even though that's our Constitution.
Oh, the Constitution, always getting in the way, just like its evil cousin, politics.
Tyler makes the point that any sovereign wealth fund in the United States would be hamstrung by the way politics works here.
Politics is politics.
You cannot stop politics from interfering in what the government does with its money.
Just look at Texas.
The original point of the Texas Permanent School Fund was to fund public schools in the state, but Marissa Perez -Diaz, the vice chair of that fund, says that's not where all the money goes once the legislature gets a hold of it.
Depending on what the legislature that's in office at the time is really prioritizing.
Those dollars can go everywhere from public education to infrastructure to transportation.
I would roughly say around 50 percent is what we'll see that typically goes back to education and the other 50 percent is allocated to different branches of governance.
Okay, so that's half of the money not going to public schools, usually.
Well, to be fair, the reason this happens is because in 1856, the Texas legislature saw all that money going to schools and they appear to have gotten a wee bit jealous.
They decided that the schools could share with railroad infrastructure projects.
I mean, I guess when they wrote that provision, they weren't as specific as they needed to be.
Yeah, that's the problem of how money that goes out of the fund is spent.
There's also the problem of deciding how the money that goes into a United States fund would be invested.
One huge temptation for political leaders, Tyler says, would be to push a sovereign wealth fund to invest in certain US assets, which when you think about it, sounds entirely dodgy.
James Brill actually agrees with Tyler here.
Political interference of any kind would be bad, he says.
But he argues that there's no reason we couldn't insulate a US sovereign wealth fund from politics.
You really want to have independence, probably something akin to what the Federal Reserve has when it conducts monetary policy.
The concept of a sovereign wealth fund?
It's an idea, right?
But even James admits it's actually unlikely to come to pass anytime soon.
Right now, he says there isn't close to enough support on Capitol Hill.
It would take an act of Congress.
And I just think it's very unlikely that we would see enough political will to put this in place.
James says he heard a lot of opposition to sovereign wealth funds when they first took off.
People feared politicization and national security threats.
But those fears faded, and now sovereign wealth funds are a part of the global financial landscape.
He hopes the same will happen with a US fund.
He planted a few seeds now, a decade or two down the line.
You never know what happens.
And Tyler, what does he think?
Every country is different.
We should take that very, very seriously.
The United States has a lot of strengths.
Let's build on those.
Let's not pretend we're a small, well -governed country with a big budget surplus.
Wouldn't it be nice to think so?
I'm going to go write some fanfiction.
One can dream. But you know, we would be curious to hear what you all think.
So you can email us at indicator at NPR .org and tell us what you would do with a US sovereign wealth fund.
Or even if you think it's a good idea.
This episode was produced by Angel Correros with engineering by Maggie Luthar.
It was fact -checked by Cia Juarez.
Keking Cannon is her editor and the indicators are production of NPR.
