Government reserves don't make money


#1

What I’ve always found curious is that, while you pay interest on government debt, you don’t earn interest on capital reserves. This is obviously unrealistic; you’re not squirreling away stacks of hundred-dollar bills in the White House basement, but investing government surplus into foreign bonds (e.g. China) or local ventures (e.g. Australia). You should be able to use your reserve to fund mandatory spending like government pensions, and the elderly should be happy that their pensions are secure. That’s realistic. Currently, if you have any reserves, it makes sense to cut taxes immediately.

Now, to avoid players from building up large reserves with which to fund the rest of their spending (taking taxes out of the equation), a situation might occur for countries with a high reserve to GDP ratio: lack of venture capital. Due to the government controlling a large share of the economic capital and using it for safe investments only, riskier startups have trouble getting funding. The result is a big hit to GDP, the self-employed, and capitalists.


#2

Governments cannot take surplus funds and deposit them with banks, it is illegal.
It would remove even more money from the economy as the banks pay interest to the government.


#3

But many governments hold foreign treasury bonds on which they earn interest, or invest in potentially-profitable ventures domestically, as I mentioned. Especially governments with surpluses of foreign currency tend to find something to do with that money.


#4

They usually hold other currencies rather than bonds which are more long term in nature.


#5

Even if governments cannot deposit their money in the bank to collect interest that way; if I can borrow money from other countries when I am in debt, why can I not lend money TO other countries that need money when I have a surplus?

Also, that money could be used to invest in privately owned companies or to form state owned companies in and out of the country, which would also generate revenue for the country, as well as be able to remove corporate price fixing by forcing companies to compete with them. For instance, the Canadian Government used to own Petro Canada (stupidly sold it) which allowed them indirect control on the price of gasoline, and they still own the liquor stores (and as such, receive the bulk of liquor sale profits).


#6

I am experimenting with a mod, with a policy named State Owned Industry.

Such a policy would cost money initially, but decrease unemployment, and provide some revenue later. Socialists love it, Capitalists hate it.


#7

I am interested in this mod and this policy.

Is it available for download somewhere? How large can the state owned industry get?


#8

Hi, from a developer POV, the only reason the game does not simulate interest on government holdings, in the style of a sovereign wealth fund, is that in game design terms, it’s too much of a virtuous cycle, in that once you start winning, it just makes it easier and easier… And primarily the game is meant to be fun :smiley:
I get the impression that in practice, governments tend to have more things that they want to do than they can afford, so generally when the government builds up any significant reserves, there are no shortage of demands for it to spend those reserves on X or Y.


#9

In the real world, there are many reasons why the government doesn’t acquire all the country’s industries.

The foremost reason might be public opinion. In Sweden, the Social Democratic government tried to nationalize all manufacturing industries in the 1970s. That (together with marginal taxes that occasionally reached above 100%) made them lose an election for the first time they acquired power in 1932.

Also, competition encourages development. A monopoly has no incentive to improve products or cut costs, since there is no market share left to claim.