Across the world, governments maintain investment portfolios. Typically, these are policies that were originally enacted as a result of settlers finding an abundant natural resource. Other systems are managed specifically to ensure that businesses that match their constituents’ values move in nearby. Others still are managed for-profit, profit that is used to offset taxes or to pay a direct dividend to taxpayers.
The Alaska Permanent Fund
One prominent example of a managed investment portfolio centered on a natural resource is the Alaska Permanent Fund. The APF is managed by a state-owned corporation called the Alaska Permanent Fund Corporation. It was established in 1976, well after Alaska was settled, to begin profit-sharing of Alaska’s natural oil with the public who lives on the land.
In 2019, Alaska’s permanent fund was worth around $64,000,000,000, funded solely by oil revenues generated by the public corporation. The APF, created in Alaska’s state constitution, is thus able to pay out a dividend to the tune of $1,600 to each resident.
On an average year, the state’s general fund (i.e., the one big “checkbook” everything in the state budget comes out of) shows a deficit, while the consolidated account of both the general fund and permanent fund shows a surplus, indicating that the Alaska Permanent Fund could effectively be used as a salve for a rocky economy when used as a government savings tool or to lower taxes across-the-board, especially if states created similar programs without existing cash flow issues.
A 2018 paper out of the University of Chicago found that there were no employment-related impacts to the payout of the dividend. The Alaska Permanent Fund’s dividend is disbursed on an annual basis.
Sovereign wealth funds
A more expansive approach to public investment is seen in the countries around the world which maintain sovereign wealth funds. Other names for similar concepts are sovereign investment funds or social wealth funds, and a much smaller-scale version might be managed in your municipality by a board called the trust fund trustees or in your county by a county-wide elected treasurer. A sovereign wealth fund, like the Alaska Permanent Fund, is managed most typically by a publicly-owned corporation or an elected or appointed commission. Unlike the Alaska Permanent Fund, however, a sovereign wealth fund is more like a private investment portfolio than a public oil company.
Sovereign wealth funds are managed to drive profit and to signal national values. Most commonly, profit is the prime (or only) motive, and these sovereign wealth funds are maintained mainly by revenues from exports. Others are created using revenues from similar sources but self-sustain due to profits being re-invested in other sectors, and a few do nothing other than hold cash-generating securities. Some sovereign wealth funds are integral to the jurisdiction’s fiscal management while others are used simply to fund particular areas of interest such as the arts, education, or the aforementioned dividend.
Norway’s Government Pension Fund
The Government Pension Fund of Norway, a name which refers to two sovereign wealth funds, one much larger with global assets, and another much smaller that holds only domestic assets, is worth around $1.3 trillion and holds over 1% of global stocks. That breaks down to over $245,000 per Norwegian citizen. Of note is Norway’s paltry $171 billion national debt, rounding out to a total “public worth” of each citizen $212,000 if the government decided to loot the fund to become permanently debt-free.
An American approach
Naturally, America is different from many other countries. One issue that needs to be contended with is the division of power between many levels of government (while some other nations are unitary authorities) which each have their own procedures for actually enacting any sort of program. National sentiments are vastly more libertarian and a truly voluntary approach will result in the most enriching policy.
Across the country, municipalities elect or appoint trust fund trustees and counties elect or appoint treasurers who often find themselves in the unique position of having some legal constraints on how they can manage public funds but little true supervision otherwise. These boards and officers should be consulting with investment experts, and one possible investing strategy that could be explored would be tactical asset allocation.
Global tactical asset allocation (GTAA) AGG 12, GTAA AGG 6, and GTAA AGG 3 all refer to the same strategy with different criteria. GTAA AGG 12 invests in only the top-12 asset classes (out of 13 available) on a 200-day, rolling aggregate basis. More aggressively, GTAA AGG 6 invests only in the top-6 classes, and AGG 3 in the top-3. AGG 3 presents the highest rates of return, but also requires more active management, suffers from a higher volatility, and necessitates the freedom to draw down the account and to shift assets back into cash or foreign currency. AGG 3 expects a rate of annual return of 19.1% while AGG 6 expects a rate of 17.8%. That 19.1% carries a higher volatility of 14.8% compared to AGG 6’s 11.6%.
A libertarian approach to adopting this at the local, county, or state level would be to pose the creation of such a fund to a ballot question. Participation in the program could be considered opt-in, with individuals who want to invest either earmarking some of their tax bill to be deposited or choosing to see a higher tax bill once at the creation of the fund. Participation could also be considered opt-out, with individuals who don’t want to participate receiving the equivalent of an initial deposit in their first received dividend or as a tax rebate, resulting in exclusion from future dividends. A third approach would require a super-majority for passage of a local question that uses a budget surplus as, or raises and appropriates, the initial deposit. That approach applies to a dividend-oriented plan but would find its best use if the investment fund is used to offset taxes.
However the fund is created and wherever the source of the initial deposit, believers in this plan need to run for and win or be appointed to seats that manage these funds in order to reform to tactical asset allocation. States may need state legislation to enable towns and counties to create such funds.
A public investment fund creates wealth from which communities can draw from to free themselves from the yoke of taxation. Funds generated by these funds and saved can ensure continuity of services communities have come to expect, without reliance on individuals being able to afford the taxes in a volatile economy. Direct dividends could also be paid out to members of the community with little impact to their own economic activity, except for the businesses which would see an influx of cash as is typical after the payout of dividends in other jurisdictions.
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