A USA Sovereign Wealth Fund?

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In 2007, Tyler Cowen raised an intriguing possibility.

I have yet to see the evidence that trade has a significant negative impact on middle class wages, but for sake of argument assume it is true. However benevolent it may sound, strengthening the social safety net would not be my policy recommendation number one. After all, if Samuelson-Stolper factor price equalization is the main mechanism at work, wages would have a long way to fall downwards and if anyone in the middle class is to keep working, the safety net must eventually be cut, not increased. You might think we can fund all these trade-losers by taxing capital but of course the incidence of taxes on capital sometimes falls on labor, not to mention that at some point the Laffer Curve kicks in.

Is not the appropriate policy recommendation to create a budget surplus, create a U.S.A. Sovereign Wealth Fund, and invest the resulting capital in the corporate winners from this entire process? In other words, we would be giving the trade-losers a more direct share in capital. Since output is rising and wages are falling, the return to capital must be rising; let's make money off of that.

Given the state of America's public finances, this is perhaps better described as an intriguing impossibility. And as once-mighty sovereign wealth funds in the Gulf and elsewhere evaporate, this does seem like a less attractive option on the surface. But NYU sociologist Dalton Conley has a thoughtful discussion of the USA sovereign wealth fund concept that is well worth a look. In the old days, policy entrepreneurs wanted the U.S. to mimic Japan or Germany. Conley asks us to look to ... Qatar.

With the current consumption-based approach to social and economic policy, there will always be a disconnect between the macroeconomic health of the U.S. economy and the economic fortunes of the typical American family. That's because technology-induced productivity growth often results in a windfall for the few at the top and little or no increased income rewards for those at the bottom. By contrast, if everyone were an investor, national productivity gains could instead be distributed in the form of dividends. When productivity went up, we could actually work less and take more time off when our kids were born or our parents were ailing, for instance. Such a work-deemphasizing approach would represent nothing short of a whole new economic policy-one better fit to a post-industrial knowledge economy and a fragile global ecosystem threatened by our consumerist culture.

A pipe dream? Hardly. Many other countries already enjoy such benefits. Qataris, Norwegians, and Emiratis all enjoy standards of living similar to ours without having to work much (or fret over the existence of jobs).

Conley goes on to sketch out what an American SWF might look like and how it would be governed. If the idea strikes you as zany, well, keep in mind that zanier things have happened.

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Reihan Salam is a policy advisor at Economics 21, a columnist for The Daily, and a blogger for National Review Online.

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