Money Matters

Economics, Banking, Finance, and Supply Chains

Angrynomics – The summary: Part 10

Angrynomics: An image representing the prevalence of sovereign wealth funds
This entry is part 10 of 15 in the series Angrynomics - The Summary

This post is part of a series of posts that summarizes the book Angrynomics by Eric Lonergan and Mark Blyth.

If you found this post via search, it probably makes sense to start with the link to the full series, which is both here, and above.

Suggested prescriptions for Angrynomics

But first:Featured Image credit.

So, does the void left after the crash of capitalism 3.0 leave us hopeless? Do we just give up? Accept the negative aspects of globalization? Accept 30 plus years of stagnating wages? Accept widening wealth and income inequality?

Or are there things we can do to fix capitalism? Or has the time come to burn it to the ground? As Karl Marx predicted?

The book contains a number of VERY interesting policy ideas for capitalism 4.0.

National Wealth Funds

These are also called Sovereign Wealth Funds and essentially they are investment funds, owned by governments, for specific purposes.

They are also not all national funds. Such funds can be owned by lower levels of government, such as states, provinces, and territories.

The basic idea is sovereign wealth funds can provide “ownership” of assets to people who typically don’t.

If you’re a state employee (or retiree) of the state of California, you have a vested interest in CalPERS, the California Public Employees Retirement System, which is nothing more than an investment fund that pays retirement benefits.

The idea is sometime similar to this should be done for residents of nations.

The Sovereign Wealth Fund best known to Americans is the State of Alaska Permanent Fund out of which every resident of Alaska receives a check every year from the government.

In case you didn’t know, the state of Alaska has a “reverse income tax” in as much as Alaska residents don’t pay money to the government, the government pays money to them.

These are investment funds such as are managed for pensions, 401(k)s, universities endowments, and wealthy individuals and families.

They include the ownership of assets, such as stocks, bonds, real estate, hedge funds, etc.

The only difference is who owns them and why.

Sovereign Wealth Funds are owned by governments, for specifically stated purposes, which can be to cover general government expenses (Norway has such a fund that provides 20% of the annual spending for the Norweigian federal government), K12 and or university education systems (the state of Texas has one of each of these), or, like Alaska, to send residents a check once a year.

The basic idea proposed in the book is the nations of the world should borrow money to fund these investment funds, then every year send everyone a check according to the rules of how the fund is managed.

For example, one of the rules of the Norwegian fund is no more than 4% of the fund value can be withdrawn every year. But, since the fund grows at a rate of greater than 4% a year, Norway receives 20% of total federal government spending from that “less than 4%” of the fund, and the fund continues to grow.

For nations that don’t currently have such funds, they should borrow an appropriate amount and start a fund. The US might start with $1 trillion and Canada might start with $45 billion. I picked those numbers because they are all about 15% of the current annual federal budget.

How can they afford it?

Two ways:

The national treasuries borrow from the national central banks are what today are exceptionally low-interest rates of around 0.25%.

And as these funds typically appreciate in value at a rate of 5% to 7% per year, part of the fund rules can be that interest payments on these loans come from fund appreciation.

Or recognize that…

In reality, currency-issuing governments don’t actually borrow the currency they issue. When the US treasury “borrows” from the US central bank, it’s like if your left pocket borrowed money from your right pocket. I know we call it borrowing, but that’s a weird label when the money being borrowed was created from thin air by the currency issuer in order to lend it to the currency issuer. But anyway, that’s another story.


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