Everyone In Norway Is Now a Krone Millionaire

So far, the total cost of the wars in Iraq and Afghanistan is just over $1.5T.

Our national debt is $16T. Without those wars, we would still be $14.5T short of starting a sovereign wealth fund.

Not exactly. It's a bit more nuanced, as most things in life are.

1. By the end of this decade, as best can be estimated including interest costs and other factors, the conflicts in Iraq and Afghanistan will have ended up costing the U.S. taxpayers at best $4 trillion, and perhaps more likely, upwards of $6 trillion (Source: The Financial Legacy of Iraq and Afghanistan: How Wartime Spending Decisions Will Constrain Future National Security Budgets. Bilmes, Linda J. Harvard University John F. Kennedy School of Government [Abstract]). This does not appear to include the trillions of dollars in lost revenues that are now all but certain to occur over the coming decade, as well, due to the NSA spying controversy, which has led to large drops in revenue for some of America's largest corporations, with more expected upon contract renewal in the next few years; a second and third order effect that no one can fully account for under present computing power.

2. You'd have to take a multi-generational approach to building the capital levels in the sovereign wealth fund. At $4 to $6 trillion, that would be - if you'll pardon the language - one hell of a start. After being fully vested, even at conservative rates of return, you would have a pile of money sufficient to cover a very big chunk of the interest on the national debt.

3. The United States would never permit its national debt to be fully repaid as it would lead to disastrous financial outcomes for the population, nor would you even need to begin repaying it to setup the wealth fund. Most of our leading economic engines - companies like Coca-Cola, Johnson & Johnson, Exxon Mobil - derive enormous percentages of their revenues from international non-dollar denominated sources. If there were no national debt, the dollar would strengthen to the point that it would kill every manufacturing business in the country that relied on foreign markets because we'd never be able to sell our goods in any other nation - we'd be priced completely out of their affordability ranges on everything from washers to video game systems. Big companies would likely adjust by setting up plants within other nations themselves, but the resulting profit figures would be terrible, making it hard to raise investment back home in domestic markets.

Debt as a percentage of GDP absolutely needs to decline because we're back at the rates Eisenhower had in the post World War II days; far too high. But paying off the debt entirely? It can't work in our present system unless you want to blow the trade deficit even further open (albeit something that could be mitigated were we to source our energy needs entirely domestically; say, by building nuclear power plants or whatever.)

Rather, to fix this, you would need to implement a constitutional limit that restrained the ability of Congress to spend, like the one now enacted in Switzerland, begin funding a sovereign wealth fund with very specific pro-public rules (e.g., no management fees, fully audited annual reports, no complex assets; the Vanguard of government investments), and let inflation slowly lower the debt-to-GDP ratio so you could reduce the debt burden without suffering the consequences of austerity, which can paradoxically lead to increases in debt if the inflationary pressures begin to exceed what were expected.

It would take 20-50 years. Trying to speed it up beyond that, without a miracle, would lead to some extraordinarily unpleasant living conditions for the poor and middle classes. That's why it hasn't been done, yet. Our system doesn't take the long-view.

Great example is the Canadian CPP - it's been responsibly managed/funded since the mid 90's and for a population of 31 million we are sitting on a 153 billion dollar fund.

Strange, I thought I posted a comment yesterday (unless it was moderated?). My question was essentially on why exactly the complete reduction of the Government deficit would necessarily lead to a stronger dollar (as exchange rates are determined by multiple factors, only one of which is government deficits).

Joshua, How do we know when we have the right level of debt? What are the indicators? You hinted at historic rates, but are there any concrete indicators. Like companies, does it vary depending on the state of and type of our major industries?

Constitutional Convention, round 2. An article V convention could incentivize big-picture, long-term thinking.

Oh wait, I forgot the state legislatures are full of aspiring career politicians too. I'll be in my corner.

Very interesting. That's about US $800 billion. A little further reading finds their North Sea oil is in a period of decline, although there are promising deposits in the Barents Sea. North Dakota would do well to mirror this save and invest plan.

I was about to say, the states seeing major oil booms should take a page out of this book. If Oklahoma and Texas had been doing that the past 100 years, they'd never have budget crisis again. The shale boom would be a smart time to start.

State of Texas or Oklahoma or Ohio or PA doesn't own the minerals, the private land owners do.

I didn't imply that the government owned the mineral rights. However, almost all states impose a "severance tax" on the removal of non-renewable resources and that doesn't begin to count the total amount of government revenue that flows in from the income of the companies, it's employee's, the mineral right owners, etc... that didn't exist a few short years ago. I'm recommending intelligent use and long-term planning for what is likely a one time windfall.

http://www.ncsl.org/research/energy/state-revenues-and-the-natural-gas-boom.aspx

Also was not thinking about mineral rights. Taxes, taxes, taxes. In a 2-year period North Dakota's sales taxes are about half a BILLION ahead of the previous 2 years. Also: "Oil and gas production and extraction tax collections in May (2013) were $157 million." More people working also meant more vehicle registration taxes and on and on and on.
Source:
http://www.commerce.nd.gov/news/detail.asp?newsID=1139

Alaska has the Permanent Fund which has billions of dollars (30+). Each resident gets dividend payouts from the fund. It still has not tempted me to move to AK. I like my summers.

Just looked online, it is at 50 billion.

In the USA, unlike almost every other country in the world, minerals are held by private individuals (the owners of the surface usually, but not always). So the individual owns 100% of the minerals and gets the royalities not the nation or state. There are some exceptions, like state parks, but the norm is unlike other countries.

It's not on its way down. We have found multiple big sites in the north sea and have a lot of unfound spots aswell. Only thing that is stopping us is that we aren't allowed to drill for oil far north in Norway, so basically our government is arguing about that.

Joshua,

Do you have the same moral qualms about perpetual sovereign wealth finds that you about perpetual private trust funds? Why or why not?

I've thought about it for a week and my answer: No.

The primary problem with private aristocracies is that it concentrates political power, through financial resources, in the hands of those who neither earned it nor who are the most adapt at managing it or directing the resources of a country. History tends to show a habit of the non-deserving rich gaming the system to change the rules in their favor, until you eventually get revolutions or social upheaval. People don't tolerate injustice. Very few folks mind someone like Steve Jobs being rich because he earned it. He made products that made the lives of millions of people better and more fun. They would not feel as kindly if his granddaughter owned 50% of the rental properties in Cleveland and was jacking up the rates so she could add another gold-plated fountain to her 7th estate in Switzerland.

With a perpetual sovereign wealth fund, as long as the mandate was written morally and intelligently, every single citizen of a nation is benefiting from the investments being made in education, health care, and infrastructure. Since everyone is extracting, or has the opportunity to extract, value at the same rate from what amounts to a national trust fund, there can be no inequality among the various beneficiaries in any meaningful sense. Everyone gets to partake in the clean parks. Everyone gets a free college education. Everyone enjoys a well-funded military.

Again, this is predicated upon the assumption that the fund is well-structured, like the one in Norway. I would say it would be immoral if you had some special interest group hijack the legislature and then vote themselves significantly more benefits than their neighbors received. But the sovereign wealth fund itself? No, I don't find it problematic as I don't think it can be held analogous to a private trust.

Good read. Alberta's Heritage Fund is a similar initiative... unfortunately not nearly so well-managed.

Has anyone ever told you that you have a sexy mind? I'm not even gay, and I really, really want to do something sexual with you.

LOL. We'll have to ask Aaron. Is Josh any good in bed? 🙂

If the assets are domestic, is there really an advantage in taxing and then investing rather than taxing less in the first place? Instead of running the surplus, why not let people keep their money and make their own investments - then if necessary tax those assets later?
The only reason for a sovereign wealth fund that i can see is if you think that the government management of wealth will be superior to the private - otherwise it is a complete wash.