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When President Donald Trump announced in August that the federal government took an equity stake in Intel, he bragged that taxpayers had “paid zero” for part of a company now “worth $11 billion.” In reality, taxpayers paid plenty: $8.9 billion in subsidies with potentially more to come. The government simply dressed up the giveaway as an investment, which some leaders see as only the beginning.
If you’re not deafened by Commerce Secretary Howard Lutnick’s cheers, you’ll hear economists from the right and the left expressing alarm. Politicians picking winners, subsidizing favored firms, and now grabbing government ownership stakes create the market distortions that conservatives once decried.
Also, acting as both regulator and shareholder generates conflicts of interest on an epic scale. Will Washington regulate Intel as forcefully as the company’s competitors or tilt the field? The question answers itself.
As troubling as the deal is, some policymakers now say it should be only a “down payment” on a U.S. sovereign wealth fund (SWF). National Economic Council Director Kevin Hassett recently told CNBC that “many, many countries” have SWFs and suggested that the Intel stake moves America in that direction.
This idea is terrible.
More than 90 countries operate SWFs, but look closer. These funds exist in one of two environments: undemocratic regimes like China and the United Arab Emirates (UAE); or in resource-rich countries like Norway and Kuwait whose governments generate consistent budget surpluses, often from oil and gas revenues that they then invest.
As my Mercatus Center colleague Jack Salmon explains in a detailed Substack post, Norway has the world’s largest fund. Over the past 15 years, it’s also run average surpluses equal to nearly 10 percent of its gross domestic product (GDP). Singapore, often cited for its model SWF, runs an average fiscal surplus of 3.6 percent. The petroleum-rich UAE posts surpluses of about 3 percent.
The United States has no surplus, running average deficits of 7 percent of GDP over the same period. Gross U.S. debt is roughly $37 trillion, with Congress flirting with adding another $116 trillion over the next 30 years if it doesn’t reform entitlement programs.
Washington doesn’t have spare revenue; it borrows to pay bills, such as growing interest on debt we already owe. To propose borrowing even more to play the role of investment manager is fiscal madness.
SWF advocates argue that the government can exploit a supposed “free money” arbitrage by borrowing at the risk-free rate (via Treasury securities) and then investing at the higher market rate. That premise collapses under scrutiny.
First, the interest rates tied to this process aren’t permanently low; they rise when debt looks unsustainable, as America’s debt surely does. Second, even if borrowing costs appear lower than investment returns, private investors already pursue these opportunities. The U.S. capital market is not short of money. There’s no gain for society when the government simply displaces private investors and leaves taxpayers to shoulder both risk and additional debt.
SWFs are political institutions and unlike private investors, governments are never disciplined by profit and loss. As then–presidential candidate Barack Obama once warned in 2008, they can be “motivated by more than just market considerations.” Their portfolios, as Salmon documents, have become playgrounds for lobbying, regulatory capture, and ideological crusades.
In Australia, successive governments have redirected the “Future Fund” toward politically convenient projects. In New Zealand, the “Superannuation Fund” has been divesting from politically disfavored investments. South Korea’s fund has been repeatedly reshaped by bureaucratic infighting.
Strictly speaking, these three are not classic sovereign wealth funds, but that distinction is irrelevant here. Once governments pool and invest large sums outside normal budget processes, the money becomes politicized. The evidence is overwhelming that funds become crony-capitalist tools vulnerable to shifting political winds and mission creep. They don’t insulate politics from markets; they inject politics into every investment decision.
An American SWF would entrench rent seeking on a scale unseen since New Deal corporatist experiments. Picture trillions invested directly into equities and bonds, with Washington deciding which industries deserve support. Imagine policy decisions about energy, tech, labor standards, and even foreign relations warped by the government’s financial stake.
Once Uncle Sam starts acquiring slices of corporate pies, the temptation to steer regulation to protect his portfolio will be overwhelming. And to those on the right who think Republicans have the proper values to pull this off, remember that you won’t always be in power.
We don’t need another subsidy machine disguised as investment. We have something better: the U.S. economy itself. The best way to strengthen it is not through bureaucrats buying equities but by enacting structural reforms to strengthen every sector for every worker and consumer. That means lowering regulatory barriers, restraining spending, and fixing entitlements.
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Veronique de Rugy
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