Should The United States Have A National Investment Authority?

On Tuesday, Boston College Law School welcomed Professor Saule Omarova (Cornell) as the first presenter in our inaugural Regulation and Markets Workshop Series. The paper (with Robert Hockett, also of Cornell) is entitled “Private Wealth and Public Goods: A Case for a National Investment Authority.” It’s available on SSRN.

In brief, the paper makes a two pronged contribution: First, a policy proposal for the creation of a National Investment Authority (NIA), a hybrid, public-private entity that directs private financial capital to fund long-term infrastructure and development projects; and second, a theoretical re-envisioning of what public goods are and how to provide them.

What is quite interesting from a tax and public finance perspective is that the NIA proposal aims to fill an institutional gap between the classic Treasury function and that of the central bank (the Fed). As Omarova and Hockett characterize it, the standard response to the public goods problem is to have Treasury, as the fiscal authority, collect tax payments (or borrow) and use the proceeds to finance public goods. However, they argue that political budget fights have rendered Treasury unable to advance large-scale and long-term public infrastructure investments. While the Fed has partially attempted to fill the gap and to encourage infrastructure investment using monetary policy tools, these tools are insufficient. As a result of the policy gap between the Treasury and Fed mandates, economic growth and development suffer.

Omarova and Hockett’s proposed NIA is therefore envisioned as an institution that can fulfill a functional gap between Treasury and Fed, by harnessing and directing private funds for the provision of important public goods. More fundamentally, the project normatively re-envisions the role of the sovereign in managing systemic risk and leverage in the financial system while also being an optimizer of credit allocation to the “right” public infrastructure projects. For example, by monetizing future tax revenues or creating other payment sources to generate a return, the sovereign can make broader categories of investments in public infrastructure attractive to private investors.

The introduction of macroprudential and credit allocation considerations into the world of public finance is an interesting twist on the usual conversation, which tends to revolve around tax revenues and government borrowing. In my experience, the systemic risk and credit allocation conversation that’s common among financial institutions and monetary scholars (like Omarova and Hockett) and the public finance conversation more familiar to tax scholars often don’t happen in the same breath. But maybe they should. The NIA proposal is a nice entry point into thinking about how these ideas and insights, which usually happen in separate academic silos, might be brought together.

Of course, the paper raises a number of complex and important questions, including questions about the normatively desirable relationship among taxation, government borrowing, and private-equity-like investment in public infrastructure that earns a return. For example, one question I continue to chew on is how one might feel about a system in which we don’t extract more revenues through taxation in the present, but then monetize future revenue streams to pay off private equity investors who have previously made infrastructure investments. Such a system raises obvious issues of behavioral distortion, fairness, as well as questions about intergenerational burdens. We had some lively discussions about some of those issues in the workshop.

In summary, an interesting paper that’s well worth a read for tax audiences.