The Wealth of Nations

I think George Will hits pretty much exactly the right note today in his column on sovereign wealth funds.

Many countries exporting oil, toys or underwear to America are running trade surpluses. These countries need to do something with their dollars — it is better that they invest them than buy weapons with them — and want something with a higher return than U.S. Treasury bonds offer. By buying minority interests in U.S. financial institutions or other companies, sovereign wealth funds are gaining money-management expertise.

Various U.S. states and municipalities, too, are scrambling for higher returns through investments in equities because they have made $700 billion in unfunded pension promises to public employees. Stephen Schwarzman, CEO of the Blackstone Group, a large private equity firm, says, “In our experience, there is virtually no difference between going to a sovereign fund (for investment capital) and going to a state pension fund in the U.S.” Because U.S. policy endorses the free flow of capital around the world, inflows of foreign investments should be welcome — if the motive of the nations operating sovereign wealth funds is profit-maximization rather than political power.

If anything he’s too cautious — the "potential problems" he worries about are fairly minimal, as Eli Lehrer argues here:

Meanwhile, over at Economist’s View, Mark Thoma argues that various concerns about SVW’s might be addressed by setting up indirect financial intermediaries.