It is clear that Donald Trump’s worst policy is protectionism, but his silliest policy is more difficult to identify.
Today, let’s consider two possible choices:
Have the federal government borrow more money to create a “sovereign wealth fund.”
Have the federal government borrow more money to create a “strategic crypto reserve.”
The most obvious question to ask about these two options is whether it makes sense for Uncle Sam to borrow even more money when government already is far too big.
Especially at a time when Washington is running annual deficits of nearly $2 trillion on top of a national debt that exceeds $30 trillion.
Does it make any sense to have more red ink in order to give politicians control of a big pile of money?
In an editorial last month, the Wall Street Journal highlighted some of the major risks of a sovereign wealth fund. Here are some excerpts.
President Trump’s proposal…to create a new sovereign wealth fund…would take resources from the private economy, fund political boondoggles, and mess with the business decisions of private companies. …Why has no President done this before? One reason is the U.S. perennially runs budget deficits, projected at $1.9 trillion for this fiscal year. Countries with sovereign wealth funds typically invest surplus revenue from commodity sales or excess foreign exchange reserves… Other countries that have wealth funds, such as Norway, finance them with revenue from oil or resource sales. …Such funds typically enrich a country’s rulers and their friends far more than citizens. Foreign leaders use the funds to finance businesses and projects of political allies. Corruption is a constant temptation. Malaysia’s version, 1MDB, channeled billions of dollars to support the lifestyles of a Prime Minister and his cronies. …The biggest danger is that such a fund will be used to invest in private companies. Politicians would love a separate vehicle to direct capital without having to go through Congress. …with ownership comes political control. A sovereign wealth fund would give Mr. Trump and future Presidents more leverage to bully businesses. Witness how public pension funds use their investments to coerce companies to adopt their climate and cultural agenda.
The editorial’s conclusion hits the nail on the head.
National wealth is created by the ingenuity and risk-taking of its citizens. They build new companies and make new discoveries. That’s how America became rich and built an economy worth trillions. Government doesn’t create wealth, and a sovereign wealth fund would merely be one more way for the government to commandeer private wealth for political purposes.
While a sovereign wealth fund is a big dumb idea, Trump also has a small dumb idea.
He wants the federal government to buy cryptocurrency and place it in a “strategic crypto reserve.” Here are some passages from a CNBCreport.
Trump announced the creation of a strategic crypto reserve for the U.S. that would include not just bitcoin but several other digital currencies… Such a move would entail using cash to buy…riskier assets that have unproven value and have the potential to bolster the net worth of a select few investors who own the coins. That’s all the more problematic to those who want to axe government spending by trillions of dollars, in support of Elon Musk’s cost-cutting mission at the so-called Department of Government Efficiency. …Vinny Lingham, creator of blockchain startup Civic and a big crypto influencer, wrote, “Call me old fashioned but I don’t think the government should be pumping our crypto bags with taxpayer money while we are running a near $2trn deficit.”
I confess that I don’t understand cryptocurrency, but I instinctively support the concept.
That being said, why have politicians buy BitCoin? Or any other cryptocurrency?
I’ll close by recycling my 5th Theorem of Government – especially for those who think a sovereign wealth fund and a strategic crypto reserve are good ideas simply because Trump is proposing them.
I want them to think whether these schemes will be a good idea when AOC or some other leftist is in the White House.
The bottom line is that it’s a bad idea to let government interfere with the allocation of capital.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
