This is the subject of my latest column for Bloomberg, here is an excerpt:
It is true that the expected rate of return of the US stock market is higher than the borrowing rate of the US government. But the important thing is this the net an increase in the value of the investment to the community, not a marginal return on the government portfolio. If the government buys some of my mutual funds, for example, and gets a 7% return that I would otherwise get, there is no increase in the value of welfare. On paper, the sovereign wealth fund looks like a huge success, but the government has just issued more debt and redistributed some of the money coming back from citizens and towards itself.
To the extent that the government can initiate new investments and “pick winners,” it may increase the overall benefit to society. But that is a much more difficult endeavor than investing in the stock market. And since Democratic administrations have promoted or approved labor standards and diversification of many government grants and contracts, they may impose similar requirements on US SWFs – which will be eliminated, or revised, under a Republican administration.
Recommended, there are some important arguments in the link.
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