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People are encouraged to invest in order to provide passive income for their retirement.

Meanwhile, lots of the population is on welfare, which, I understand, comes out of taxes. Investing isn't really an option for them.

Assuming a sufficient amount of money were available for the purpose, could an investment fund (bonds, etc.) permanently provide enough income stream to substantially support welfare (especially if the government overhead of welfare were removed)?

I have a similar question to whether government could be funded in such a fashion, eliminating taxes.

I'm fairly certain that the answer to the second is "no", at least with government so large, but not sure about the first. I feel that there is a limit somewhere. I think basically it boils down to: Is investment a zero-sum game, where someone has to lose in order for others to win?

I searched, but didn't see any question that came close to this one, although I'm sure I'm hardly the first person to wonder about this. I looked at the Alaska Permanent Fund, but it's only about $1200 per year, and isn't an investment fund.

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Theoretically it could be possible. Investing is not a zero sum game.

However, practically government welfare spending is too large. The Norwegian Sovereign Wealth fund, that is widely considered to be well managed has an average nominal return of about 6% and average real (i.e. inflation adjusted) return of approximately 3.8%.

This is likely a near upper bound for what some well governed government sovereign fund can achieve. Moreover, while investing is not zero sum game, the marginal returns to investment should be declining so the returns would decline as more money is being invested at some point.

However, despite of this let’s work with 3.8% as number for back of an envelope calculations. Current US welfare spending is about 1.3 trillion according to federalsafetynet.com. Hence the value invested into the investment fund to get this amount of money would have to be about 34 which is about 1.5x of current US GDP and about 6x US total budget.

Of course US can’t just devote its whole budget for 6 years to amass the fund. If US could set aside 5% of its budget every year it would take over 100 years.

Again that assumes that constant return which with so much investment would likely drop at some point. As a result while in principle it’s possible for a country to just set aside some portion of a budget for few centuries and then fund welfare through investment, most likely no government would have enough patience to do it. Most politicians think in 4 year cycles. This would require centuries of public saving, most governments are already running large deficits so this is simply unrealistic.

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  • $\begingroup$ I was thinking handled by a third party; NOT let politicians get involved. I assume you meant 34 "trillion"? I saw an article earlier on state governments making retirement funds the default: usatoday.com/story/money/2024/02/25/… $\endgroup$ Commented Feb 29 at 2:54
  • $\begingroup$ @ScottMcNay 1. Yes 34 trillion. 2. What third party? That is more than entire GDP of US for an individual to save up to such amount it would be impossible. 3. Retirement is not the same as welfare. Retirement is government essentially forcing you to save portion from your salary under paternalistic belief that most people are not smart enough to do it themselves. Retirement can have welfare component if retirement benefits of very poor are subsidized but that’s not the same as welfare. That clearly cannot work for let’s say food stamps for a single mother with children that never had a job $\endgroup$
    – 1muflon1
    Commented Feb 29 at 21:55
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  1. Theoretically this is possible. But no entity can go about just seeking to "create" trillions of dollars in investment income. Investment returns are either:
    • based on the anticipation of financial gain from increased real economic activity (production) OR;
    • set by a government who is issuing the financial instrument, whose returns are backed by taxing power and belief in the viability of that government

Of practical issue is whether there are currently trillions of dollars in arbitrage opportunities in private equity, or the extent of the devaluation of credit rating or currency that would occur upon issuance of debt that would pay trillions in interest. This is not practical in a country such as the United States, and there are not unfinanced projects that produce value approaching the country's entire economy. However, for a country such as Qatar, it is a feasible but perhaps a socially undesirable possibility. If Qatar Investment Authority's approximately USD 501 billion in assets were invested at an annual rate of 5%, it would equate to approximately USD 9,300 for each of its roughly 2.7 million citizens. Eliminate children and those who do not need welfare and that number would more than double.

  1. It depends on what you mean by "investing". For the most part, day traders (independent people with money who actively seek out arbitrage opportunities on public exchanges) are probably close to a zero-sum game. Also, the increasing complexity of financial instruments add less and less value the further they are removed from the source of the original obligation. It's impossible to say for sure that financial instruments such as Collateralized Debt Obligations and derivative options are zero-sum, but when these instruments (directly or indirectly) end up on the balance sheets of subsidized businesses or public investment authorities, it's safe to say some of the financial gains had originally are eventually spread among a large base of taxpayers, and could be zero-sum or negative-sum (in the context of a single country).

However, investing in the sense of having a properly-functioning financial market that effectively assess and prices risk and assets is not a zero-sum financial game, though there remain individual winners and losers. That is, for countries where material gain among its citizens is the objective.

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