Epistemic status: Politics and economics are very far from being my area of expertise, and even to the extent that I understand them I suspect this post to be an over simplification. I think it contains the core of a good idea, but I have little to no hope of it being politically feasible.
I’ve been thinking a bunch about sovereign wealth funds recently (for values of recently that go back about three months).
The core idea of a sovereign wealth fund is that you create a state owned investment fund and fill it with tax money. Often (Usually? Always?) they are required to only invest in things outside the country,
Normally the sovereign wealth fund seems to just sit there as basically a war chest for emergencies. It was considered big news when Norway actually spent some money from their sovereign wealth fund earlier this year.
I’ve been thinking about a different use case though, which is that of the dividend paying sovereign wealth fund – one where every resident of the country receives a monthly payment out of the fund. This isn’t without precedent – the Alaska Permanent Fund more or less works like this (it pays annually rather than monthly. I’m not wed to it being monthly but I think it’s a better idea for the benefit of poorer people with less reliable income sources).
Obviously doing this significantly reduces the existing benefits of the sovereign wealth fund – if you’re spending money from it on an ongoing basis then there will be less money in it for emergencies – but I think the benefit of paying everyone a monthly dividend significantly outweighs that.
The primary reason I’ve been thinking about this is as a transitional demand towards universal basic income. Over time as the size of the wealth fund increases (due to a mix of interest, a long history of paying in and possibly/probably increased taxation) the size of the dividends will go up and the monthly payment might start to look a lot like a basic income.
This might even remove the need for a defined universal income altogether, but I’m less sure of that – a friend made the valid point that it’s a significantly less rights based approach, which has its downsides. On the other hand I suspect you’re much more easily able to argue for the rights based approach when you’re already effectively paying it out.
But I’ve been thinking about another possible benefit of the sovereign wealth fund, which is that with an additional bit of legislation it could potentially be used to smooth out some aspects of politics a lot.
The prompting thought for this is this Vox article about a carbon tax initiative opposed by the left. I don’t know to what extend the article is true, but it certainly sounds plausible: Essentially the initiative is being opposed because it is revenue neutral (it slashes an existing highly regressive tax and replaces it with a carbon tax) rather than putting the extra money into more progressive policies.
Based purely on this oversimplified description, I’m reasonably strongly on the side of the initiative, and probably would be even if my politics didn’t include a “Carbon Tax By Any Means Necessary” clause.
But in general this sort of coupling seems guaranteed to lead to a political deadlock: If you attach all your politics to all your other politics in an inseparable way, then you will be opposed by people who disagree with any of your politics. If you can decouple those somewhat then you potentially have the opportunity to find common ground that benefits everyone.
(In practice what seems to happen instead is some combination of horse trading and producing incredibly complicated bills that contain things that have nothing to do with each other as a way of striking compromises. This seems less than optimal to me, but maybe it’s secretly optimal in some way that totally makes sense if you’re a politics expert)
It occurred to me though that dividend paying sovereign wealth funds create an interesting way of achieving that decoupling.
What if you instituted a rule that any bill that gets passed must have at most one of the following three things:
- A change to the dividend rate of the sovereign wealth fund
- Changes (any combination of increases and decreases) to the tax that goes in to the sovereign wealth fund
- Additional expenditure that comes out of the dividends for the sovereign wealth fund
No additional expenditures or revenue sources that do not go via the sovereign wealth fund are now permitted.
The result is that all coupling between taxation and expenditure now goes through the sovereign wealth fund – they’re not decoupled per se, because they’re somewhat intrinsically coupled by constraints on government revenue – but their coupling is inherently buffered and reduced.
I think doing it this way has a number of significant advantages beyond that decoupling:
- Almost all increases of taxation are now significantly more progressive, and unless they would have already been incredibly regressive (e.g. taxes on public transportation, tax increases on small homes, etc) are actively progressive: Consumption is pretty correlated with wealth, so most tax increases on sale of goods will benefit the poor more. So e.g. a carbon tax is now automatically highly progressive because it just goes out to everyone and poorer people will gain more than they spend out of it.
- Increases in taxation should become more politically acceptable because they will generally result in you getting some or most of the money back – the richer you are the less acceptable this will be because the numbers won’t work in your favour, but it will still be more acceptable. Additionally because they won’t be coupled to increases in expenditure, they’ll be more appealing to the small government folks.
- Increases in expenditure now have a very simple and direct point of comparison: Is the benefit of this program greater than just giving people the money? I suspect in many cases this will decrease expenditure (if you don’t count dividend payouts as part of expenditure, which is arguable), but I also think that’s OK – it will only decrease expenditure in cases where people are significantly benefiting from the extra cash.
- Increases in expenditure may become more politically acceptable because they are not tied to increases in taxation (although they are tied to decreases in your dividend, which may be only slightly more acceptable, or possibly even less acceptable).
There are a whole bunch of complications that I’m completely glossing over – what counts as a new expenditure vs a change to expenditure, what do you do about changes that don’t currently require legislation, how does government debt fit into this, etc. Those would all have to be solved in order to implement something like this in practice, but I expect there are reasonable solutions.
What I suspect to be the real problem with implementing something like this is that people on the left will describe it as a libertarian power fantasy and people on the right will describe it as literally communism. It seems to be almost perfectly designed to be politically unacceptable to both sides as a mechanism for giving both sides a common ground.
But I still think it might be a good idea.