We often talk about the huge public debt of the US government. Why does it not invest in the stock market (at least in index funds) instead of issuing debt? Can they not reduce the debt that way?
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3$\begingroup$ To invest in stocks you need to first spend money. To issue debt you first get money. The government issues debt to get money to cover expenditures in excess of revenues. $\endgroup$– BB KingCommented Feb 12, 2020 at 4:48
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$\begingroup$ Governments outside the US sometimes do something like that, when they have excess funds... Google "sovereign wealth fund". (Per @BBKing's comment that excess situation typically doesn't apply to the US.) With such funds, the issue is what prudential measures apply it, so the "nation's wealth" isn't wasted in some market crash etc. $\endgroup$– fantastic peace and prosperityCommented Feb 12, 2020 at 5:46
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$\begingroup$ Sovereign wealth funds (at least in theory) generate their revenues without resorting to monetary policy. For example, Norway's fund is supported by royalties from oil and gas operations. But if you look at the holdings of Norway's fund (see here nbim.no/en/the-fund/holdings/holdings-as-at-31.12.2018/…), you will see that NONE of it is held in Norway-domiciled companies. $\endgroup$– hehCommented Feb 12, 2020 at 15:43
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$\begingroup$ Investing runs completely counter to the ability to tax its citizens. The government doesn't need to invest to generate income. Taxation, by its very definition, is the government's income. It issues debt when tax revenue no longer covers the cost to run government programs. Why risk tax revenue in equities when all they can do is raise taxes? $\endgroup$– Queue MannCommented Mar 13, 2020 at 19:07
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1 Answer
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The US government could do that but policies prohibit this, since buying a specific company's stock benefits the shareholders of that company. This would be a huge conflict of interest.
Another answer by Paul Mulwitz, an online commentator, says “If the government bought ownership in private companies they would no longer be private companies. “
A good example would be if the US government invested in Apple computers. Would it act against the company in case of a violation? There would be a conflict of interest.
Side note, What does the government invest in?
According to the CBO (https://www.cbo.gov/publication/55375) in 2018, the federal government spent $492 billion on investment—for physical capital, education and training, and research and development—which represented 12 percent of federal spending and 2 percent of GDP.
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2$\begingroup$ I'm not sure this is an entirely convincing argument. "Too big to fail" applied to private companies aplenty in the 2008 crisis, even if not all. Also, just having [domestic] jobs on the line sometimes does make the gov't skittish to take action against a company. See Trudeau and SNC-Lavalin etc. $\endgroup$ Commented Feb 12, 2020 at 5:38