4 ms·

What's with the "sovereign wealth fund" idea? What's the advantage of raising taxes to pay for a sovereign wealth fund the interest on which pays for the UBI? W

What's with the "sovereign wealth fund" idea? What's the advantage of raising taxes to pay for a sovereign wealth fund the interest on which pays for the UBI? Why not just pay for the UBI with the taxes? People don't seem to understand that you can't create money just by randomly moving it around.

rtpg 9y ago
Unlike with taxes , the sovereign wealth fund could invest the money it holds onto to earn some interest It's the same reason universities have endowments being managed as their own thing. Also if it's a fund, the money is pre-earmarked for this usage. Taxes -> UBI end up being more easily messed up by politics (see social security vs. your 401(k))
- OscarCunningham 9y ago
  >Unlike with taxes , the sovereign wealth fund could invest the money it holds onto to earn some interest The people the money was taken from could also have invested it profitably. They know that their taxes will be higher down-the-line so it's up to them whether they want to save or spend it. >'s the same reason universities have endowments being managed as their own thing. University endowments also seem far to big to me (at least the largest ones do). I suspect it's mostly a prestige/signalling thing. It might be rational on the part of the university if it attracts more donors, but in that case it isn't rational on the part of the donors. They view saving money as the responsible thing to do because it is the responsible thing to do for a human who will eventually retire. The same logic doesn't apply to Harvard. > if it's a fund, the money is pre-earmarked for this usage. Taxes -> UBI end up being more easily messed up by politics (see social security vs. your 401(k)) I guess this is partly true, but it's easy to get the money out of there with accounting trickery. Just say "To make the fund's investments safer we are going to invest them in government bonds" and then as-if-by-magic you have the money.
- shubb 9y ago
  In order to pay 10k a year from interested the funds would need lets say 1'000'000 under management per person. It is hard to say where that money would come from - will it be printed? Taxed? Borrowed (interest?)? To do any of these things at the required scale would surely have unintended effects. Also as ability to pay for unemployment during a crisis now depends on cyclical income from investments, rather than countercyclical government bonds, it feels like this would collapse when it is needed most.
crdoconnor 9y ago
You can create money, it just exerts an inflationary pressure that is commensurate with the rate at which it is spent (minus the offsetting effect of industrial slack). Issuing more public debt and spending it is (in a low interest environment) not so very different to printing cash and spending it. The creation of highly liquid assets backed by cash that don't pay interest = might as well be cash. The "sovereign wealth fund" idea is weird though. I don't see the point of the UK creating one - it's not like it has vast quantities of oil wealth it needs to sequester.
- zeth___ 9y ago
  There hasn't been inflationary pressure in the last 20 years. We can print money till the cows come home and we'll still be stuck in this economic nadir.
  - fodanshi 9y ago
    No... we will sink further
  - crdoconnor 9y ago
    There have been significant inflationary pressures in housing and most other financial asset markets. Printing money isn't really the issue - it's what is done with it once printed that matters.
    - zeth___ 9y ago
      Inflation is different to speculation.
      - crdoconnor 9y ago
        It is indeed. Not really relevant here though.
- djrobstep 9y ago
  What's weird about sovereign wealth funds? It's very straightforward. Wealth should be shared more equally and that's what building a sovereign wealth fund achieves.
bildung 9y ago
The obvious difference is that the collected taxes aren't just gone when putting them into a souvereign wealth fund. Over the years you'll have significantly more money to put into UBI, because of the compounded interest.
- makomk 9y ago
  Compound interest is not, in fact, magic - the money has to come from somewhere. The safest investment is government bonds, in which case it literally comes out of future tax payments. Alternatively, you can invest in corporate bonds and stocks, in which case - in the current economic climate at least - you're providing economic stimulus that pumps the bubble a little higher and drives down long-term returns for everyone else who's looking to retire in the future.
- mseebach 9y ago
  For compound interest to make a difference, you need to leave the money alone for quite a bit of time. That does not seem to be be plan here. Sovereign wealth funds are generally endowed with some kind of income stream, typically the revenue from natural resources, which it then invests and spends the proceeds from. The UK doesn't have such revenue streams lying around, that aren't already paying into the treasury, thus any such funding will deprive the treasury of the same amount, and so the wealth fund won't really do anything, as least on the short term. And that's without considering the fact that the government runs at a deficit and continously borrows money. Taking a loan to boost your savings is an interesting strategy. There are all sorts of paths the UK could take to transfer things around and build up a sovereign wealth fund over time, but getting it to a stage where it would be able to pay out billions a year would take decades in the absolute best case scenario (that excludes any of the 99.9% of scenarios where the government "temporarily" taps the fund for some very important political goal that absolutely coincidentally have to be met in an election year).
skookumchuck 9y ago
The US had that idea with the "Social Security Trust Fund". Of course, all that money got spent.
- tomcam 9y ago
  Bingo
- mjevans 9y ago
  The US elects a lot of people that are great at giving lip-service in front of the camera and at sucking down the not-quite actual bribes in back rooms. Naturally they don't do budgets the rational way: by writing in the funding at the same time that the actual law/regulation is being enacted. I really don't understand how's it's feasible to pass such unfunded mandates. If something costs more it should be clearly added, hopefully with limits or automatic scaling (in the case of something like say, requiring that every X see a 'full' response (E.G. natural disasters, murders, etc).
tonyedgecombe 9y ago
It will probably end up like the NI fund which exists in theory but in reality immediately gets lent back to the government.
- OscarCunningham 9y ago
  US social security is also like this.

rtpg 9y ago

Unlike with taxes , the sovereign wealth fund could invest the money it holds onto to earn some interest It's the same reason universities have endowments being managed as their own thing. Also if it's a fund, the money is pre-earmarked for this usage. Taxes -> UBI end up being more easily messed up by politics (see social security vs. your 401(k))

OscarCunningham 9y ago
>Unlike with taxes , the sovereign wealth fund could invest the money it holds onto to earn some interest The people the money was taken from could also have invested it profitably. They know that their taxes will be higher down-the-line so it's up to them whether they want to save or spend it. >'s the same reason universities have endowments being managed as their own thing. University endowments also seem far to big to me (at least the largest ones do). I suspect it's mostly a prestige/signalling thing. It might be rational on the part of the university if it attracts more donors, but in that case it isn't rational on the part of the donors. They view saving money as the responsible thing to do because it is the responsible thing to do for a human who will eventually retire. The same logic doesn't apply to Harvard. > if it's a fund, the money is pre-earmarked for this usage. Taxes -> UBI end up being more easily messed up by politics (see social security vs. your 401(k)) I guess this is partly true, but it's easy to get the money out of there with accounting trickery. Just say "To make the fund's investments safer we are going to invest them in government bonds" and then as-if-by-magic you have the money.
shubb 9y ago
In order to pay 10k a year from interested the funds would need lets say 1'000'000 under management per person. It is hard to say where that money would come from - will it be printed? Taxed? Borrowed (interest?)? To do any of these things at the required scale would surely have unintended effects. Also as ability to pay for unemployment during a crisis now depends on cyclical income from investments, rather than countercyclical government bonds, it feels like this would collapse when it is needed most.

crdoconnor 9y ago

You can create money, it just exerts an inflationary pressure that is commensurate with the rate at which it is spent (minus the offsetting effect of industrial slack). Issuing more public debt and spending it is (in a low interest environment) not so very different to printing cash and spending it. The creation of highly liquid assets backed by cash that don't pay interest = might as well be cash. The "sovereign wealth fund" idea is weird though. I don't see the point of the UK creating one - it's not like it has vast quantities of oil wealth it needs to sequester.

zeth___ 9y ago
There hasn't been inflationary pressure in the last 20 years. We can print money till the cows come home and we'll still be stuck in this economic nadir.
- fodanshi 9y ago
  No... we will sink further
- crdoconnor 9y ago
  There have been significant inflationary pressures in housing and most other financial asset markets. Printing money isn't really the issue - it's what is done with it once printed that matters.
  - zeth___ 9y ago
    Inflation is different to speculation.
    - crdoconnor 9y ago
      It is indeed. Not really relevant here though.
djrobstep 9y ago
What's weird about sovereign wealth funds? It's very straightforward. Wealth should be shared more equally and that's what building a sovereign wealth fund achieves.

bildung 9y ago

The obvious difference is that the collected taxes aren't just gone when putting them into a souvereign wealth fund. Over the years you'll have significantly more money to put into UBI, because of the compounded interest.

makomk 9y ago
Compound interest is not, in fact, magic - the money has to come from somewhere. The safest investment is government bonds, in which case it literally comes out of future tax payments. Alternatively, you can invest in corporate bonds and stocks, in which case - in the current economic climate at least - you're providing economic stimulus that pumps the bubble a little higher and drives down long-term returns for everyone else who's looking to retire in the future.
mseebach 9y ago
For compound interest to make a difference, you need to leave the money alone for quite a bit of time. That does not seem to be be plan here. Sovereign wealth funds are generally endowed with some kind of income stream, typically the revenue from natural resources, which it then invests and spends the proceeds from. The UK doesn't have such revenue streams lying around, that aren't already paying into the treasury, thus any such funding will deprive the treasury of the same amount, and so the wealth fund won't really do anything, as least on the short term. And that's without considering the fact that the government runs at a deficit and continously borrows money. Taking a loan to boost your savings is an interesting strategy. There are all sorts of paths the UK could take to transfer things around and build up a sovereign wealth fund over time, but getting it to a stage where it would be able to pay out billions a year would take decades in the absolute best case scenario (that excludes any of the 99.9% of scenarios where the government "temporarily" taps the fund for some very important political goal that absolutely coincidentally have to be met in an election year).

skookumchuck 9y ago

The US had that idea with the "Social Security Trust Fund". Of course, all that money got spent.

tomcam 9y ago
Bingo
mjevans 9y ago
The US elects a lot of people that are great at giving lip-service in front of the camera and at sucking down the not-quite actual bribes in back rooms. Naturally they don't do budgets the rational way: by writing in the funding at the same time that the actual law/regulation is being enacted. I really don't understand how's it's feasible to pass such unfunded mandates. If something costs more it should be clearly added, hopefully with limits or automatic scaling (in the case of something like say, requiring that every X see a 'full' response (E.G. natural disasters, murders, etc).

tonyedgecombe 9y ago

It will probably end up like the NI fund which exists in theory but in reality immediately gets lent back to the government.

OscarCunningham 9y ago
US social security is also like this.