President Trump’s executive order directing the formation of an American sovereign wealth fund (SWF) was greeted, like so much else, with approval from his closest supporters and muted grumbling from his detractors…even though most Americans are not familiar with the concept.
Sovereign wealth funds are government-run national investment programs typically used by small countries which are highly reliant on commodities to smooth out price fluctuations and diversify their economies. In other cases, they serve as a vehicle for intergenerational savings, preserving national wealth for future citizens. But within the context of purchasing TikTok, the purpose of Trump’s move is to create an SWF that functions as a US government investment vehicle.
Setting aside that sovereign wealth funds are typically used to invest budget surpluses — something the US government hasn’t had in decades — the more pressing issue is that a government-directed investment is inherently prone to poor choices and political misallocation, and moreover a distraction from the more urgent need to reduce debt and eliminate waste.
During the COVID-19 pandemic, the US government undertook significant efforts to procure ventilators to address anticipated shortages in healthcare facilities. In total, the federal government ordered approximately 198,890 ventilators at a cost of just over $2.9 billion. But the procurement process faced challenges. For instance, in September 2019, the Department of Health and Human Services (HHS) ordered 10,000 ventilators from Royal Philips NV at $3,280 each, with deliveries scheduled for mid-2020. As the pandemic progressed, Philips secured a new deal with the government, this time charging approximately $15,000 per ventilator, raising concerns about inflated pricing during an emergency.
In the midst of these difficulties, the idea surfaced that the US should have its own ventilator production facilities to avoid reliance on foreign manufacturers and expedite emergency responses. To address the shortage, the federal government invoked the Defense Production Act, prompting companies like General Motors and Ford to collaborate with existing ventilator manufacturers to ramp up production. Ford, in partnership with GE Healthcare, leveraged the design of Airon Corp.’s FDA-cleared ventilator to mass-produce units in Michigan.
Despite these efforts to increase supply, many procurement deals still resulted in financial losses. An investigation by the New York City Comptroller revealed that the city lost $1.86 million in a failed attempt to purchase ventilators during the pandemic. The city had prepaid $8.26 million for 130 ventilators that were never delivered, highlighting the risks associated with expedited procurement (especially by non-experts) during emergencies.
Furthermore, a report by the USAID Office of the Inspector General found that the decision to donate ventilators abroad was not supported by the agency’s COVID-19 response strategy, raising further questions about the allocation of resources during the pandemic.
In the aftermath of the COVID-19 pandemic, some government-procured ventilators were sold for scrap at significantly reduced prices. For instance, in April 2020, then-Mayor Bill de Blasio commissioned 3,000 ventilators for $12 million. These devices were later sold to a scrap metal dealer for less than $25,000, translating to approximately $8.33 per ventilator. The sale was part of a larger auction where New York City disposed of nearly $225 million worth of surplus COVID-19 medical equipment and safety gear for just $500,000.
But the story gets worse.
Despite the substantial investment in ventilators during the COVID-19 pandemic, subsequent analyses revealed that patients placed on mechanical ventilation often experienced worse outcomes. Studies indicated that the mortality rate among COVID-19 patients requiring mechanical ventilation was notably high, with some reports suggesting rates as elevated as 90 percent in certain settings. This high mortality is partly attributed to complications such as ventilator-associated pneumonia (VAP), which occurs in approximately 8 to 28 percent of mechanically ventilated patients. VAP can lead to prolonged hospital stays and increased mortality.
Additionally, mechanical ventilation can cause ventilator-induced lung injury (VILI), where overdistension of lung tissues leads to further damage. This overdistension can exacerbate lung injury, leading to a decline in lung function the longer a patient remains on the ventilator.
The government mishandled COVID-19 ventilator procurement — as it has other emergency responses — by overspending, misallocating resources, and later selling malinvested equipment for scrap, all in the pursuit of a treatment that, it seems, led to bad outcomes for the afflicted. This strongly suggests that government-run investment efforts, such as a sovereign wealth fund, would fare even worse.
In emergencies, missteps can sometimes be attributed to the need for rapid decision-making under uncertainty. Investments in financial markets, technology, or other industries, however, require consistent long-term expertise, discipline, and market responsiveness — qualities that government bureaucracies inherently lack. Private investors have profound knowledge advantages, profit incentives, and engage in purposeful, risk-based decision-making. Government officials, by contrast, face the classic disadvantages of central planning, receive no personal financial accountability for poor performance, and tend to operate with political motivations that prioritize optics and short-term considerations over prudent managerial finance.
Examples abound. Between 1999 and 2002, the UK Treasury sold approximately 395 tonnes of gold at an average price of $275 per ounce. Gold prices subsequently soared to over $1,000 per ounce within a few years. Not long after that, in 2009 the US Department of Energy approved a $535 million loan guarantee to Solyndra, a solar panel manufacturer. Despite substantial support, Solyndra filed for bankruptcy in 2011, ceasing operations and laying off 1,100 employees. American taxpayers bore the loss.
Similarly, the California High-Speed Rail project was originally estimated to cost $33 billion for a 500-mile system connecting Los Angeles to San Francisco. However, as of 2024, projections indicate that the cost has escalated to over $106 billion, with significant delays and only partial construction completed.
The Car Allowance Rebate System (CARS), commonly known as “Cash for Clunkers”, was a $3 billion federal program intended to stimulate the automotive industry and promote the purchase of fuel-efficient vehicles. Under this initiative, consumers received rebates of $3,500 to $4,500 for trading in older, less fuel-efficient cars for new models.
Research from the National Bureau of Economic Research (NBER) indicated that the surge in vehicle purchases was short-lived, with a notable decline in sales following the program’s conclusion, suggesting a muted overall impact on auto purchases. Further studies, such as one from Texas A&M University, found that the program inadvertently reduced overall consumer spending on new vehicles. By incentivizing the purchase of more fuel-efficient but often less-expensive cars, the program led to an estimated $3 billion decrease in industry revenue, counteracting its primary goal of economic stimulation. Additionally, the mandated destruction of approximately 677,000 used vehicles under the program reduced the availability of affordable used cars, depriving low-income consumers who rely on the secondary auto market of inventory.
A sovereign wealth fund would not, whatever the intentions of its government administrators, be guided purely by market signals but rather by political interests. That virtually ensures poor investment choices, investments in politically favored industries, and/or wasteful subsidies tending to yield subpar returns.
Government officials will not have the same rigorous concern for opportunity costs that drives private investors and for-profit managers, as bureaucratic decision-making is often guided by political priorities and budget cycles rather than the disciplined allocation of capital to its most productive use. The Knowledge Problem is real — and ignoring it is expensive.
The short-lived call to dole out COVID recovery funds via a reanimation of the Great Depression-era Reconstruction Finance Corporation was nothing if not an appeal for the return of institutionalized cronyism. Most monies didn’t flow directly to political insiders, and billions more flowed into grift, fraud, and waste.
The spectacle of exposing and eliminating waste at the US Agency for International Development (USAID) on one hand while simultaneously launching a federal investment program is incongruous at best. Unlike the private sector, where poor performance leads to fund withdrawals and business failure, government entities are insulated from direct consequences and often double down on bad investments rather than admitting failure. The United States is currently $36.4 trillion in debt, with interest on that debt costing $1.03 trillion per year and unfunded liabilities currently estimated at $226 trillion.
If a government cannot efficiently manage the logistics of purchasing, building, and distributing ventilators — a relatively straightforward industrial operation — entrusting it with large-scale, long-term financial investments on the order of trillions of dollars does not seem terribly wise.
